Cozy for seller carryback? Overkill to use loan servicer?

7 Replies

I recently agreed to take back a note on a property I am selling. We’ll close at the end of the week at a title company.

At this point, the way I set out to handle the mortgage payments is through Cozy, just like it were rent paid. It's free and straightforward. The only hiccup I see is if the mortgagor decides to make extra principal payments. Cozy is better for the same thing at the same time every month and would imagine extra principal payments could be handled well by loan servicers over cozy. And then there are probably tax forms that need to be sent out by 01/31 that they'd probably take care of?

At some point, I plan to scale up and purchase some first trust deed notes and get more involved in this field. But for now, is it overkill to set up payments with a servicer like FCI, Madison Management, Polaris, FCI, PPR, Allied Servicing, or ZimpleMoney for this one-off deal? I’ve started exploring these websites while writing this post.

What I have read thus far is that these servicers “keep you in compliance with federal regulations” and it’s obvious they provide a value for investors wanting to scale, because I don't see how one could be involved with dozens or hundreds of notes and stay on top of it all. But just one to start, do I really need a servicer? 

@Paul Winka I would say "yes," especially if you're dealing with an owner-occupant. Are you ready to learn a whole new subject (Servicer compliance for a consumer loan) or would you rather focus on scaling your note business? If there's any chance of you selling this note down the line, you'll want to have a professional servicing company as well. Unless you do a fantastic job of self-servicing, most note buyers will expect a deeper discount for a self-serviced note. We outsource servicing to offload the servicing compliance risk. If we had enough notes to justify it, I'd prefer to keep servicing inhouse but it would be another business. An inhouse servicerwould be better for loss mit purposes in my opinion.

@Paul Winka go with a servicer, they charge about $15/mo for a performing note. They do the monthly statements and end of year tax notices. Also, you are working under their debt collector's licence for the state in which the property is located. Use that extra time to focus on other investments

Thanks for the contributions, and they have encouraged me to have the mortgage serviced. I arrived at the same conclusion on my own.

@Bob Malecki I've decided to go with Madison Management Services, and we'll see how they do on this. I was surprised to find out that they report to TransUnion, a nice plus. For performing notes, it's $40 at the start and $20/month w/o impounds, $35 w/impounds.

Like many buyers, I would bet they more likely to stick with the program than if it were just me, Cozy, and our bank accounts involved. With a servicer it's like I have "my people" taking care of it for me. 

@Andy Mirza , you're right, I really don't want to learn the minutiae of compliance for a consumer loan and can focus on other stuff. Part of the value too is getting the experience of seeing how a deal flows with the loan servicing company so I know how it goes with the next one.

I could see it getting really crazy with more than a dozen notes at time especially when there are problems.

I forgot to ask if there is better pricing for bigger portfolios though. Are discounts a thing?

@Paul Winka I believe that FCI will give a discount on large portfolios and I think Madison mostly mimics their fee schedules but we're talking about 100+ loans. (I think....I could be wrong, it's been a while since I've looked it up.)