All Forum Posts by: Mike Hartzog

You might also consider attending the Note Expo in Dallas, November 7-8. 

Thanks to all for the thoughtful feedback on this.  Here's my take based on the comments and what I have found in my research:

I very much like the idea of having a servicer handle the transaction.  It seems that they are uniquely qualified to do so due to the fact that they are dealing with notes and funds escrow on a daily basis. I mentioned the FCI exchange example earlier,  They provide a nice escrow and closing process for transactions between parties for their note exchange. 

Title companies may not be the best choice because they are pre-wired for real-estate transactions and perform these functions as a way to sell title insurance.  One title company I am talking with is telling me that they can provide escrow services in certain states, but not others due to limitations on where they can receive and disburse funds.  In other words, they can only help in states where they are already set up. In addition, I would have to train them on the process.

Attorneys are always an option.  I see this approach as more suited to purchase and sale of larger note pools. 

Handling the transaction directly with the buyer still works.  After all, that's how most note transactions are done, and I will likely offer this as a lower cost option, along with an escrowed closing for those who want it that way.

Thanks for the additional insight Dion. With the first part of your post I think you are saying that it is best to use a lawyer for AOM/Allonge creation. I am not sure I understand what you are saying with the above.  Perhaps you can rephrase. What is it that you don't think an escrow agent can do?

Good question.  That would be a great resource.

Thanks Rob - I am thinking of the lenders policy endorsement (or new policy) and part of the escrow service at the option of the buyer.

K. Marie - Thanks for the suggestion.  I like the idea.  I hadn't thought of servicers as an option, but it might make sense, especially if I am using the same servicer for my performing loan portfolio servicing. 

When I was a brand new note investor with some knowledge but no hands-on practical experience, I executed without escrow because I really wanted to get started in non-performing investments, I had some reasons to believe the seller on the other end was legit, and because the note sellers I was working with don't use escrow.  I must admit that back then I felt a bit uneasy about it until I got some mileage on those relationships. 

An attorney is certainly an option.  Perhaps not the best one but an option nonetheless. My preference is to use a firm that does escrow agency as a service.  The problem is finding one that knows notes. 

I agree with Dmitriy.  SD retirement accounts are an awesome way to hold performing notes.  I would not use if for non-performing investments unless you have checkbook control or have your retirement account fund a business entity.

Also, the borrower primarily interacts with your servicer, not you. They may see your name or your IRA/entity name show up on the TILA letter which goes out initially to inform them of the ownership change but that can be the extent of it unless you reach out to contact them directly for some reason.

Thanks for the feedback Dion.  I have never used escrow for a note purchase and sale.  However, if I am selling to someone who doesn't know me, the idea that they wire their funds directly to me and hope that I execute on my end is not as comforting as if there were a 3rd party facilitating the transaction.  It is purely for the comfort of the buyer. 

An example of this type of process is the FCI exchange.  They receive the wired funds from the buyer and park them in their trust account.   They receive the hard copy collateral file from the seller and check it to make sure it is complete and proper prior to releasing funds to the seller and shipping collateral file to the buyer.  They offer recording of the AOM if the buyer chooses to pay for it.

This bridges the trust gap between buyers and sellers who don't know each other.  You may be right about title companies being overkill.  Most don't know about notes and in fact I have not yet found one that has this expertise.  But, I think a 3rd party escrow process for note purchase and sale has some merit just the same if it can be done at a reasonable cost.

Thanks Boyd!  I will give them a call.  I have spoken with a couple of title companies so far and neither has panned out.

I am planning to begin selling performing notes to folks who need income investments and would like to have a 3rd party escrow agent who knows notes and can handle the escrow and closing process.  This would include things like verification of the collateral file, AOM/Allonge generation, AOM recording, collateral file shipping to buyer, etc.  Ideally this escrow agent is local to me (Seattle area) but that's not a hard requirement.  I am looking for referrals.  Please chime in here or shoot me a PM if you have had good experience with any particular company/attorney.

Thanks!