Self-Servicing a note.. agree or disagree?

8 Replies

Hi all...

I know someone who has purchased a few np-notes and he "self-service" them instead of hiring an actual servicing company. I have recommended him to use a servicing company but he says that it is NOT a law requirement to have one. The notes he has purchased are usually in the final stages of the foreclosure, some already have judgments, and some even have sale dates.

I feel safer using a servicing company but my question is... is it required to hire a servicing company if you're a private investor, or can you do it yourself if you know what you're doing?

I'm only a student of notes investing and by no means an expert but from MY understanding of the situation it is now a requirement.

But no need to listen to a student when there are many true experts on the board:

@Dion DePaoli  @Bill Gulley  

I just returned from a 5 day Noteworthy Conference where there were two vendors selling self-servicing software. And there were a couple of attorneys speaking in sessions about why self-servicing is a really bad idea due to the constantly changing landscape of regulations at the state and federal levels. Too many ways to miss deadlines or say the wrong thing to a borrower - especially ones in financial trouble, BK, etc.

Also there are regulations that allow people or entities to self-service up to XX number of loans at a time or within a year, after that level is reached they must get licensed, bonded, etc.

To prove its reason for existence, the CFPB is looking for examples to pounce on - and for what? To save a $25 servicing fee or a $95 loss mitigation/negotiation fee per month? No thanks.

Takes a fool to service his own note. You might be exempt, you're not exempt from standard practice and standard practice will be what is usual and customary is. How do they find that? By looking to what is done in the industry......think they are going to call Joey and ask him what he does? Really?

With my background, having owned a mortgage servicing operation, I wouldn't go there now.......any small note investors around that feels they are more aware of servicing aspects than I am? If you do, have at it, good luck!

Just be forewarned, some borrower gets into trouble with your note and they get a hold of some hammer driver aware of servicing matters, you can get your clock cleaned, want to risk the note plus fines plus court costs? Get a servicer who is insured and bonded! Besides, the borrower can pay for it, so why go there?  :)

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

Servicing yourself creates a lot of liability. Put the cost into your monthly payment from the mortgagor.

Thank you all for the replies. 

been self-servicing my deals since 1992. Mostly land contracts out toward the coast in the beginning and distressed assets in the 2000's,  recently rehab loans in the metro charlotte area. It's all in how the process is handled.

My ownocc deals I pay more attention too. having the right process and tools in place make every difference. Run the numbers and analyze the risks. What makes sense to u? I've saved well over $20k in servicing fees. 

Originally posted by @Steve Geicher :

been self-servicing my deals since 1992. Mostly land contracts out toward the coast in the beginning and distressed assets in the 2000's,  recently rehab loans in the metro charlotte area. It's all in how the process is handled.

My ownocc deals I pay more attention too. having the right process and tools in place make every difference. Run the numbers and analyze the risks. What makes sense to u? I've saved well over $20k in servicing fees. 

 Land contracts and contract for deeds are "installment contracts" not mortgage notes. The general attitude towards installment contracts on a servicing basis is more of a landlord - tenant.  The body law and regulation around that is not as deep and broad as those around mortgages and deeds of trusts.  Simply by way of the structural differences in the instruments and the rights and interests they protect and secure.

It is good you have had a long history without issue.  It certainly is not impossible to service a loan but it does require, especially in today's regulatory climate, a heck of a lot of administration to stay on top of that regulation policy.  Further, most of this scrutiny is specifically targeted to consumer loans not investor loans.

I am not sure how you could quantify a "savings" when it comes to the contemplation of servicing (or the lack thereof).  For an account which delivers on its obligations the servicing fee is pretty small in general.  Less than $50 per period in most cases.  That amount covers all of the administration that is 'required' including proper statements and accounting amongst the requirements related to the delivery of the service itself.   So I guess if taking on all that work to save $18,000 on average for the life of each loan or $600 annually then yea, dig in, service away.

That said, understand when making that decision as it relates to the servicing of mortgages and deeds of trusts specifically those required standards and policies are not options to do or not do.  Failing to follow or implement all current policies and procedures can result in hefty fines amongst other potentially larger consequences.  

Moral of the story is, if you are going to self service loans you own you need to be fully committed to the whole operation and all that the regulations require you to do and have available for borrowers.  Being less than fully compliant will quickly and possibly substantially dwarf that annual savings of $600.



It's definitely not worth the liability and hassle to service your own portfolio, no matter how great a system you have. For $15 a month I use FCI and as far as servicers go they rock. Sure, some people are more DIY, but in this space I believe it is a mistake to go it alone. It's cheap insurance.

Josh

Joshua Andrews, Notable Investments, LLC | [email protected] | 480.438.6920 | http://www.NotableInvestors.com