Does the law require me to have a note servicing company?

Question

I'm in the process of purchasing a note in Michigan and the seller of the note says that I'm required to have a note servicing company in order for us to complete the transaction.

I'm looking to service the note myself; I typically buy and sell on land contract but this will be the first existing non performing mortgage note that I buy.

My question is: Does the law require me to have a note servicing company involved?

Scott Fain · Answer

Thanks @Keri Middaugh

Thanks @Jorie Aulston It's being purchased from an investor/lender (not an government entity).

Thanks @Linda Hastings I'm buying the note and I want to service it myself, so I don't believe that I'm entitled to be licensed and/or to have a servicer involved. The seller of the note is out of California so I'm thinking that maybe this is a requirement for "them" there???

Thanks Account Closed Your summary is what I was thinking, but they're requesting information about the servicer and before I responded (which has to be very soon) I wanted to get some more information and this helps.

Thanks again all, all of the information has helped me.

Keri Middaugh · Answer

Account Closed, might you know about this?

Account Closed · Answer

@Jordan P. - meant to delete that part...typed that before I fully read his questions...woops!

Account Closed · Answer

Not giving legal advice here, but I've never heard of any servicer requirement in Michigan and I don't see why there would be one. A servicer is simply a party that handles the administrative portion of the loan (collecting payments, sending notices, etc). The holder of the note is always the default servicer and they have incentive to do a good job - they want to get paid! Now, the note holder can separate the right to receive payment from the servicing rights (which happens to many loans sold on the secondary market) but I don't see why it'd be a legal requirement.

Think of it this way. I own my house outright and provide owner financing to sell it to my cousin. I get a note from him and take a mortgage on the house. Why would the state of Michigan require me to hire a servicing company to handle this? Hint: it wouldn't.

I assume the note you're buying is from a person (not a bank) since any bank note/mortgage would have a due-on-sale clause preventing you from engaging in this arrangement.

Curt Smith · Answer

@cody

Because a lot of mortage brokers ripped off owner occs with exploading loans when they qualified for fixed rates yet they walked out with the exploading varity and then lost their homes.  Preditory lending in short is what caused this Gov "solution".   Investors are also in this bullseye with seller financing at prices pulled out of thin air (CFPB requires or it was in the original DF statue: an appraisal... )

My business includes originating notes to occupants too, I'm in your boat.  I'm surprised you don;t know the reasons for this over reach piece of regulation?

My view is, once the whole over sight framework is blown up, the Wells Fargo account jamming rip offs will start back up, the preditory loans too, robo signing foreclosures, the whole wild west works!!

Cody L. · Answer

No, I'm not aware of any of that, nor do I want to be.  I hope Dodd Frank dies a quick death.  I have bought one note before.  And I've also seller financed (created them) and "sold" my notes by using them as part of my payment when I've bought properties from others that seller financed to me. So I've written notes, bought notes, and sold notes.  I don't see why it has to be so complex.  Again, it's an IOU.  You've loaned someone money (maybe it has property as collateral or maybe not).  They make payments to you that include P+I.   Why does this have to involve a ton of government rules?

Curt Smith · Answer

If the borrower is an owner occupant (lives in the home the note is for), the CFPB requires owner occ notes to be serviced if the insurance and taxes are escrowed.  This came out in one of the first CFPB clarifications of Dodd Frank after the CFPB was setup.

Does the law require me to have a note servicing company?

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