Mortgage Note Buyers and Sellers, Loan Servicing, and Hard Money Lenders

Sell My Note – When Carrying Real Estate Note insist on property insurance

Home sellers need to be aware of certain important details when they decide to carry back a note in a real estate transaction. When the complexities of traditional financing are removed from the sale of real estate transaction and seller financing becomes the solution, the process is so simple that it is easy to over look some of the details.

The best approach that sellers can take is follow the same process that traditional financing would use. By that I mean, make sure to include all items in the note contract that a bank would, like require the buyer(payor) to purchase an insurance policy with the proper coverage on the property. The note holder (seller) should require the payor to purchase an annual property policy that at a minimum covers the balance of the note.

Fires do happen and if you are the note holder of a property that just went up in flames, you want to have piece of mind that the payor has adequate property insurance to cover for the loss. If property insurance with adequate

Does your Owner Financed home have Property Insurance?
Does your Owner Financed home have Property Insurance?

coverage has not been put in place then you just watched the collateral secured to your note go up in flames. What are you going to foreclose on if the payor decides to quit paying you and walk away?

The policy should designate the note holder as the Loss Payee. This designation will ensure that the note holder is informed on the status of the policy and receive a certificate of insurance with each renewal. Every year the note holder should insist that the policy be renewed with adequate coverage for property loss.

Often when seller financing is used, this is one of the items that was overlooked because they just wanted to get the deal closed or possibly cut some corners to save expense. Note holders who later want to sell their note will sell at a deeper discount or have trouble finding someone to purchase the note if coverage in note in place. This is one of the reasons why it is so important to have a note professional assist you with the process.

Story: The Texas Note Company recently assisted a customer with the sale of an owner financed note in Pflugerville Texas. A mobile home note with land. The note had a face value of $50K with a balance just over $42K. We were able to give her a full purchase offer for the note which she accepted. She provided us with all the necessary documents we needed for the sale of her note.

Deed of Trust

Note Document

Warranty Deed

Settlement Statement

Property Insurance

Social Security Numbers of the payor

Payment History with Bank Deposit slips

Pictures of the property

(Just a little note: If you are considering selling your note or want a note quote we will need these documents t)

As we reviewed all the documentation in preparation for close we discovered that the payor’s property insurance only had coverage for $5,000. This was an issue because if the home burned down or was destroyed the home owners policy would have not been able to replace/rebuild their home with just $5,000. The risk to an investor would have been to great and to find a buyer without the proper coverage would have been very difficult. If the home was destroyed and the payor walked away what would be left to foreclose on? This story ends well, Texas Note was able to work with the payor and their insurance agent to increase the amount of the policy to the required level of $45K at a cost increase of just a dollar a day to note payor. Additionally, we amended the Deed of Trust to include the clause that the proper amount of property insurance must be maintained each year. Then the deal was closed and the note sell received a lump sum of cash.

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