Receiving monthly payments are the “fruit” of the Seller Financing effort. Many sellers are excited to receive and will immediately start using the cash. However, there are a few key steps that you should complete with each payment to help maximize the future value of your Note when you decide to sell.
Keeping an accurate record of the payments received on a mortgage note is essential for knowing how much the buyer still owes. This also establishes a record of their payment habits – with an added benefit.
Why Note Buyers Want Payment Histories
When an investor agrees to purchase a Note, they will request a payment history. A verifiable payment history can improve the value of a note as it provides proof of timely payments. A payment history is considered verified when it is either provided by a third party or is backed up by the documents and records outlined above.
The DIY Approach to Collecting Payments
- Place the original note and other original documents in a safe deposit box.
- Make a copy of each check or money ordered received. Accepting cash is not recommended since it is hard to verify the payment history without a paper trail.
- Deposit the payment and keep a copy of the bank record of deposit. It is best to deposit each payment separately rather than combining it with other checks.
- Create a ledger or spreadsheet reflecting the date and amount of payments received.
- Calculate the amount applied to interest, principal, late fees (if any), and the resulting principal balance. An amortization schedule or financial calculator can be helpful. Once calculated, record in the ledger.
- Send out an annual statement to the buyer or payer along with the IRS-1098 Mortgage Interest Statement.
- Verify the real estate taxes and property insurance are being kept current. Consider establishing a tax and insurance escrow where the buyer pays 1/12th of the annual amount into a reserve account each month.
- Send collection letters as necessary for late payments, lapsed insurance, or delinquent real estate taxes.
Summary
Unfortunately, many sellers fail to keep track of the payments received. When they go to sell the note, contract, or trust deed they try to recreate the history from memory. Without any proof of payments received, a Note buyer must go on faith. Sometimes a payment history affidavit can substitute for a payment record, but it still doesn’t add the value of verifiable proof.
Protect the value of your mortgage note! Set up a payment tracking method today.
Connect with Peak Notes
Why not set up a meeting with a Peak Notes specialist to discuss the best practices of managing your Note to ensure the highest future value. Meetings are brief, cost nothing and can give you more insight into how you can maximize your investment potential!
If your property is located in Florida, please click on this link and set up a meeting with John (https://peaknotes.zohobookings.com/#/talkaboutyournote).
If your property is located outside of Florida, please click on this link and set up a meeting with Karen (https://calendly.com/karenw-peak-notes/30Min).