Seller Finance/Note Servicing Requirements

[Damon Wong]

BP,

I did my first seller finance sale, creating a note that the buyer is now promptly making mortgage payments to me---going swimmingly well thus far.  After more research, I came across various blogs/posts regarding Dodd-Frank and SEC compliance rules/requirements for formal "loan servicing".  Does anyone have experience or know what is required for this?  I understand that for one or 2 notes it's not needed, but as I look to continue creating and trading notes, I want to ensure I'm in full compliance.  Thanks.

-Damon

[Terrence Evans]

For best results, following Dodd-Frank and CFPB compliance rules is ALWAYS recommended - 1 note or 100 notes.  Also helps with future resale to investors.

Some tips:
When originating,
Be compliant with Dodd-Frank ATR and perform a full qualification of the borrower (credit
check, SSN, proof of income, borrower ID, bank statements, etc.)


If you choose to service your note, it is recommended that you do all of the following:
o Keep ALL original documentation in a safe and secure location
o Collect the payments using a documented method (checks, money orders, etc). Cash is
not acceptable.
o Maintain Payment Record with date paid and current balance
o Send monthly balance statements to the Borrower
o Escrow the loan (for County Taxes and insurance)
o Track and verify any superior liens on the property other than your note
o Submit IRS Form 1098-INT to the borrower by January 31st of every year
o Notify borrower no later than 3 months prior to any principal reduction payment or
balloon payment due
o Observe borrower care of the property