​What are the issues with servicing your own note?

[David Chance]

I'm asking this question because I currently hold a note with a partner for an owner financed land sale. This was a sale that we did a couple of months back to someone we knew. Loan (~125k @ 6% with a balloon payment at 10 years).  No issues with borrower who has been paying more than the minimum payment.

As I'm reading these forums and listening to podcasts, I keep seeing others recommending that a servicer such as Madison be used to stay out of trouble because of the Dodd-Frank. I'm trying to research what kind of trouble that you can get into by servicing your own loan but I'm not finding anything that is clear.

I checked with Madison and they aren't expensive. I'd prefer that they'd service our loan but when I approached my partner about it he thought it was an unnecessary expense. However, if servicing our own note introduces a legal minefield, we'd need to know and reconsider.

If anyone has any insight, I'd appreciate it. Thanks in advance.

[Bob Malecki]

Hi David, well since you did not escrow taxes or insurance and if you're coupon rate is over 5% you're probably not in compliance with with cfpb. Also originating as a balloon payment knocks you out of compliance as well. I don't think you will find any servicer who would board this loan without concerns for being fined for compliance issues.

I would recommend you just continue to cell service until it's paid down and keep it simple.