Buying a performing note - questions about the closing process

[Kent Byron]

I'm in the due diligence period for my first note that I found through an online note exchange. It's a performing note and the collateral is an SFR in a different state than where I live. I have read the very helpful BP posts from @MikeHartzog @DionDePaoli and @DaveVanHorn and others to get familiar with the process, but now that I'm executing a transaction I find that I need clarity/guidance about a couple of the next steps . If anyone here could offer advise about these items I would greatly appreciate it!

- For the valuation, is it ok to use the BPO service offered directly on the exchange website or should I purchase that service directly from a company like valuationvision? Or would it be better to reach out to local RE agents?
- How do I ensure that the mortgage loan terms are appropriate for the state that it is recorded in and the note is written in a way that it can be enforced? Should I find my own local real estate attorney to review it?
- How does the closing happen? Will I wire funds to the exchange website to record the assignment or should I use a local escrow agent that I choose myself.

Also, since there are state and federal rules about the terms you can use when originating a loan, I wonder if note holders also take on some new roles or obligations. Will owning a financial commitment like an SFR loan place my company into a different status with regard to new fiducial/regulatory/reporting obligations? Or does the note servicer perform any compliance actions required for the state where the note is recorded? (I plan to keep the note booked at the current servicer).

Thanks for all your very helpful and generous teaching on BP!

[Natasha Hunter]

Hi Kent, 

- For the valuation, you will want to use a local RE agent. Make sure they actually go to the property by asking them to provide time-stamped photos. Otherwise, you may just get a basic CMA which won't show you the condition of the property. This is usually the hardest part of due diligence because agents don't want to waste their time working for no money so you can try to offer $50-100 for them to perform an exterior BPO. You can use a valuation company but their numbers are usually very generic so you could put yourself in a bit of trouble there. You can also have a company like wegolook.com go out and take photos to see if the property needs rehab but they won't provide a valuation.

- As for the terms, check with a real estate attorney who is in the state that you are purchasing the note in. You can have them perform a collateral review (usually anywhere from $100-300). Make sure you have an updated O&E report when you provide the collateral file. ProTitle is a great place to get one. They should be able to tell you if the note is enforceable with the state's standards. I would not use an attorney that is local to you and note in the state that you are purchasing unless they are licensed in that state as well. They may not know the in's and the out's to the state's requirements. The state also posts public regulations. A quick google search could help you identify the enforcement terms during your initial due diligence but you will want to verify before you close on the note. 

- For closing, first you will sign a loan agreement to determine what the seller will record, how much they will expect, exactly what you are paying for, and who will service the loan. Then you will wire the funds to the seller. In most agreements, the seller records the deed but this should be discussed in the front end. If you are recording the deed you can utilize a company like efile.com or you can call the county directly and ask them how you should file. 

-Note servicers need to be licensed in the state that you are purchasing. If you are staying with the current servicer odds are that they are already licensed in that state. There are some states such as GA that require the loan purchaser to also be licensed as a debt collector. Always contact an attorney if you aren't sure if you should be licensed. 

Hope this helps!