Thanks for the kind words, John. I gave up the vino in the 80’s, but I occassionally still get the facts muddled up. As one of my good friends reminds my, ‘just because the monkey’s off my back doesn’t mean the circus has left town.’
I think that loan servicing could offer a bigger, strategic place in an organization, and that’s the ability for re-writes and back-end opportunities.
If people like the servicer, especially the kind of people that make up much of our business, they’ll typically come back for additional money services when needed.
On the other hand, with servicing comes a lot of responsibility to get things right, and that means it requires good staff, accounting and servicing software, and good systems. It’s not for everyone.
Yet, I think that a small “boutique” business like ours can handle it.
Take care of yourself and hope to see you eyeball to eyeball someday, too.
I am selling off some of my property and taking back notes. The payment will include taxes and insurance. In the past I have just collected the payments and paid the insurance and taxes when due. Someone told me I must have a separate escrow account for each of my notes. This can get cumbersom and expensive. How do you legally handle escrow? And on the other side, if i am making escrow payments, how can I be assured the lender is paying the taxes?
Posted by River City on September 04, 2008 at 09:41:49:
If you do decide to escrow for taxes and insurance, be sure to keep very good records. If you do not keep good records, the money you collect for taxes and insurance will be counted in with your maximum FDIC insured balance. For it not to be included in your maximum, you have to keep records showing how much each “depositor” has in escrow with you.
How can you be assured that the lender is paying taxes and insurance timely? They have their regulators that check up on these things. They have to answer for every dollar/penny they put into an escrow account. You can also check with your insurance company and tax collector to see if payments are being made.
Posted by Bill H on September 03, 2008 at 10:31:40:
I agree with Rick, The Probate Guy.
However, my question is, “Why do you bother to collect the taxes and insurance?”
Unless you D.I.Y and your deed of trust or mortgage does not provide for it the taxes and insurance are paid by the new owner. Pretty standard paragraphs in all good DOT’s.
I sell property all the time, carry the notes, and NEVER bother with the taxes and insurance. It is their property once the deed is recorded and their RESPONSIBILITY. If they default, I get a notice and start the foreclosure for the default. That generally cures the problem, IMMEDIATELY!
Set up a system yourself. If you chose to D.I.Y., you’ll need a separate trust checking account so that you don’t co-mingle your funds and those of various borrowers.
Part of the challenge will be that you will need to, at minimum, do an annual assessment of the funds required in the escrow account that will be sufficient to pay projected property taxes and insurance.
Then you’ll need to add a “pad” to that so that you don’t run short towards the end of the year.
Now, you’ll have to pursuade your borrower to pay you the new, higher loan amount, reflecting the monthly pro-rated share of taxes and insurance.
Then you’ll need to provide each borrower some sort of statement which details how much of the escrow account was applied for a given installment.
Frankly, that may not be too difficult if you prepare a twelve month breakdown sheet using something like T-Value and label the monthly payment as “projected payment” as well as the anticipated disbursements. This sheet is what the borrower ought to see such that they can determine where their money is going.
As far as paying the taxes, you could either obtain a tax monitoring service, passing the $50-75 one-time cost to the borrower; or monitor it yourself; or collect it and disburse it as part of your escrow account.
Lastly, to be clear, you’d only need one bank account for the escrow money. Each borrower would have their own account # for you to post debits and credits.
Then again, hiring a loan servicer is not a bad option.
This sounds good until the end of the year and they have spent all their money and do not have the lump sump payment. My models do not include foreclosures and I do everything I can to keep from having to foreclose. Collecting taxes and insurance in escrow is prudent. Why do you think banks do it.
Note holder can commingle - Posted by John Merchant
Posted by John Merchant on September 03, 2008 at 12:49:17:
Owner of a note does not have to have any trust account and can commingle all he wants…heck, he could cash the check and throw the money in a shoe-box if that’s his pleasure.
Whereas a RE agent or lawyer working for a client absolutely has to maintain a trust acct (not separate ones for each client), an individual note owner/holder has no such obligations to anybody.
But having the debtor/note payor open a note collection account with a note coll. co. (at expense of borrower/debtor) does simplify record keeping and provides a neutral 3d party accounting for balance owed, payment dates, etc. so I always try to get a NC co. involved if possible.
Posted by Bill H on September 03, 2008 at 16:40:54:
Lenders ONLY do it if YOU allow it. I have several loans…NONE of which…have me paying the lenders the taxes and insurance monthly as part of the PITI…I pay strictly P & I…ONLY.
Why should I give them the $$$ with no interest, nothing, nada, for it and they have the use of it for a year?
Why give a lender say and extra $200.00 per month? If they have say 500,000 customer, and most major lenders have in the millions, then they are receiving an bonus every month for what? It does not lower your interest rate, does not pay the loan any faster…just takes it out of your pocket and puts it in their…unnecessarily in my opinion.
I can pay the taxes and insurance once or twice per year the same as they do and have the use of the $$$ for the balance of the year.
I prefer to have as much control over my $$$ as possible. NEVER have liked anyone having their hands in my pocket.
I am not out to foreclose either…however my experience has been that if they cannot pay the taxes and insurance…they probably cannot pay the note either.
You’re absolutely right, John. I guess that I just forget because I have a number of different entities. I don’t service any of my investors’ loans either but this topic is coming up in frequent conversation. Thanks for the input.
Posted by John Merchant on September 05, 2008 at 06:46:42:
I was pretty sure you’d agree when you thought about it…and I was surprised by your earlier response; could have been those post-vino gremlins got to your keyboard, as happened recently with JT-IN and to me on occasion
As we both know, the “one bigger gummint should be in charge of this too” people would love to control this element of our lives too but (Thank God for our Consitution that the Lefties can’t kill), just haven’t figured how to do it yet.
By the way, I always take some time to read what you say as your astute observations usually shed some light on the subject and illuminate its shadows. I look forward to meeting and chatting with you somewhere down the line.
Interesting, too, that you’re maybe looking at doing some loan servicing for investors. A bus. partner/associate and I are just now looking into this as a possible income adjunct, but are cautious because of some state licenses we hold that would maybe give us some regulatory hoops and hurdles we’d have to be ready for.
