Question About Deed & Note for Private Financing (Title/Escrow)

[Tim Soto]

I have a question for seasoned title/escrow company reps or investors, who execute transactions using private financing. I am trying to modify an existing Note and Deed from the originating private lender. Originally, I drafted the Note and Deed for the acquisition of the property. Since it was a short-term loan, I've had to refinance the loan, but the existing lender offered to extend the loan another couple of years. So I redrafted the Note and Deed with new terms and submitted to a title/escrow company. There's been some delays to which we've had to withdrawal the transaction. I was thinking, the only thing we went to title/escrow was for title insurance really. What else could there be? The lender knows that the title is clear of all liens and encumbrances. We've agreed on all terms and have already notarized the documents. Can I just submit the Deed to the county for recording, like a Subject-To deal and get the note serviced by a servicing company? Do I really need to go through escrow/title company for this modification of a note by the same parties? Your feedback is really appreciated.

Thanks,

Tim

[Jeff S.]

Originally posted by @Tim Soto:

... So I redrafted the Note and Deed with new terms and submitted to a title/escrow company....  We've agreed on all terms and have already notarized the documents.

I hope I'm misreading, Tim. You do not redraft a note or re-record a deed of trust. Your lender will lose seniority, you'll have at least two liens on the property, and no lender or owners title insurance. You're not clear on what terms you changed other than the maturity date, but it appears you need a modification agreement (or more safely, a lawyer).  For education only, here is how we do this:

If the only thing that has changed is the maturity date on the note, then all you need is a simple half-page document indicating the new maturity date. This would be signed by the two of you and would be held by your lender with the note. Since notes don't get recorded, and do not have to be notarized, this document would not require these either.

Similarly, if you changed the terms of the loan such as the interest rate or perhaps added an extension fee, then this too would simply be documented, signed by you and your lender, and filed away. The reason is that these are note specific and not referenced in the deed of trust.

In general, the only time a loan modification would have to be notarized and recorded is if it affected the deed of trust, which is a recorded document (constructive notice and all that). For example, a change to the principal amount owed, or any other provisions in the DOT, would require a recording. You can record the loan modification yourself by bringing the signed and notarized original to the recorder in the county where the property is located. There is no reason to use a title or escrow company for this.

To me, it's not always obvious whether the DOT is affected, so I always err on the side of caution and record any modification other than a simple extension to the maturity date.

I know you don't want to hear it, but if this is the first time you or your lender have done anything like this, I strongly suggest your lender spends some time with a lending attorney to understand this process and perhaps obtain the proper modification document. You should go with him or her. Even though I truly know you have the best of intentions, Tim, it scares me when I read about borrowers creating loan documents for their unknowing private lenders. This person trusts you.