Note transfer of ownership - How long does it take?

Question

I am fairly new to note investing and interested in purchasing notes. Most of the advice points to purchasing a performing note first before moving into NPLs. That makes sense and seems like a good approach to get more familiar with the investment. So, while I am interested in NPLs down the line, I would probably start with a performing note initially.

Assuming you have identified a note to buy (which I haven't yet) and performed due diligence, how long does it typically take to transfer title of the note and start receiving payments?

Assuming you have identified a note to buy (which I haven't yet) and performed due diligence, how long does it typically take to transfer title of the note and start receiving payments?

Andy Mirza · Answer

@Michael Whillock You're getting a lot of great information here. I'll add:

Our loan purchase agreements have three dates to be concerned about:

"Cut off" Date - anything prior to the cutoff date, is the responsibility of or goes to the seller. Anything that happens after is the responsibility of or goes to the buyer.

"Closing Date" - the date that the loan is sold (usually one or two days after the cut off date)

"Servicing Transfer" date - the date that servicing transfers to your designated servicer.

There's an interim servicing period in which the seller's servicer is servicing your loan. Make sure you understand what they are allowed to do by carefully reviewing the "Interim Servicing" section of your loan purchase agreement. Some sellers use separate loan purchase and interim servicing agreements.

You don't want the interim servicer to make advances or engage in any loss mit procedures without your permission.

I usually connect the point of contact for the seller's servicer and my designated servicer. If they're competent, that's all you should have to do and they'll take care of the rest.

I've only had one terrible servicer that caused the servicing transfer date 4 times because they didn't know what they were doing. I'll never use them again.

Andy Mirza · Answer

@Terrence Evans We use Phoenix for the DD report and have them get an O&E report. They use a different vendor than ProTitle and we find that those O&E reports are more accurate.

For BPOs, we use Summit Valuations and First Valuation.

Chris Seveney · Answer

@Michael Whillock

As part of your due diligence and when getting ready to buy, I recommend :

1. Talk to a servicer and get any paperwork executed so when you do buy that process is done

2. Make sure to have an attorney in the area to review collateral

Some other things to consider:

1. The day you wire the $ should be the day you sign loan sale agreement and when the closing date is for the note. This means payments after that date are yours

2. Ask the seller if the borrower had insurance or was it forced placed, if forced placed see below

3. After you close let the servicer know the loan will be coming over. If there was forced placed on it make sure you get insurance ASAP which can be done through servicer

Within 2 weeks seller typically will mail to you executed assignment and allonge. The assignment will need to be recorded which as noted can take minutes or months.

The transfer of data from servicer can take anywhere from 3-infinity weeks. Some are much better than others to say the least. Do not expect it to happen in a day or week, they have to send out a goodbye letter etc and make sure all files are in order

Terrence Evans · Answer

@Andy Mirza: Do you use them as all inclusive DD (incl O&E, photos, etc)??

Andy Mirza · Answer

@Michael Whillock In our experience, servicers range from mediocre to terrible. Our notes are currently with FCI. They are relatively easy to deal with and have good systems in place to take care of compliance issues. Their loss mit isn't very good but I don't know if any of them are. We monitor the servicing comments on our loans and step in when we see a borrower trying to communicate with us in a good faith effort to resolve problems.

We use Phoenix Collateral Advisors to do due diligence on our notes. They charge $200-$300 per note and provide a nice, detailed report. We use the reports as another set of eyes on the collateral and let them go through the digital images and sort things out for us in their report. It makes it easier to find the problems. I know that there are other DD companies out there and we're considering trying someone different.

Jamie Bateman · Answer

A lot of note investors like Allied as an inexpensive option, especially for performing notes. Servicing fees in general can really eat into your returns, notably on lower-dollar loans. Madison is a popular option for both performing and non-performing. They tend to do a bit more borrower reach-out but their fees a higher than Allied's are. FCI is also popular. These are just three of many capable servicers.

If you are buying just one deal to start out, it may not be a terrible idea to leave it with its current servicer. You can always switch servicers later if need be.

Michael Whillock · Answer

@Dan Deppen, @Mike Hartzog, @Chris Seveney, @Andy Mirza, @Jamie Bateman

Thanks for jumping into this thread and sharing your knowledge. It has shed some light on the "pre-work" required to get started as well as the due diligence needed. Getting an attorney queued up to review collateral for an expected purchase as well as selecting a servicer in advance of the purchase are critical prerequisites to have in place.

Regarding Servicers...I have seen some posts stating that some servicers are stronger in some areas than others. Do some work in certain states (judicial / non judicial) better than others or are they more aligned with specific service offerings such as performing vs non-performing etc. I assume the range in fees is attributed to the service offerings, perception of quality brand, etc. I guess a better question is "Are some servicers better suited to service performing loans and others non-performing? I would imagine that most good ones have a "sweet spot".Attorneys obviously need to be licensed in the state in question. So, aside from that, what skills (or areas of expertise) do you look for in an attorney to review the collateral?

Thanks again for all your help.

Jamie Bateman · Answer

Overall I would plan on 2 to 6 weeks for the servicing transfer (unless you are keeping the note with the same servicer). As stated, you want to be involved in this process to make sure it happens smoothly. But, it can be like watching paint dry, which might have you looking for your second deal sooner rather than later, haha.

The recording process can take a few days (especially if the county accepts online recordings) to several months.

Mike Hartzog · Answer

The Assignment of Mortgage/Deed of Trust is the document that conveys ownership.  Typically the buyer has the responsibility of recording this, which ensures that if the property is sold, your entity is on record as the beneficiary of the lien and you get a payoff when the sale closes.

With regard to servicing, your purchase and sale contract should state specifically that payments received after the closing date of the note sale are due to you, the buyer of the note.  So if servicing transfer takes some time, the seller must send you any payments they receive from the servicer after the sale date.

Michael Whillock · Answer

This may be a "newbie" question but it seems like having a cutoff date specified is the only real way it would work without adding unneeded confusion.

What do you mean by "fighting them" to get them transferred? Is it just following through with them to make sure it is completed and done correctly?

Otherwise, it seems like that would be a contractual obligation on at least two fronts 1) new note owner entitled to the payment of the borrower and 2) new agreement (at least for that note) for the servicer since someone else is now responsible for the servicer's fees. Is that correct?

Note transfer of ownership - How long does it take?

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