This section includes a huge amount of value for note investors as they research assets for sale. Scroll down to the bottom of this page to find six modules to take you in-depth into the critical reports and data-points necessary to understand and properly analyze before you purchase a performing or non-performing mortgage note.
This page is your reference for the high-level process and will help connect the dots as you work through each of the modules at the bottom of this page. Some of the data you will be reviewing will come directly from the seller and will not be found from any outside vendor or data provider. We will cover this information below:
Prior to making your final offer you should be provided access to scanned images of the original collateral documents. The most critical of these are the note, mortgage, assignment and allonge.
Note: The note includes the original terms between the borrower and lender. It might be called an Equity Reserve Agreement or Home Equity Line of Credit. If you’re confused, look for a document signed by the borrower including the terms. Compare the Note terms with the payment amount, interest rate, original balance, etc included on the seller’s tape.
Allonge: The allonge is the endorsement of the note which transfers the note to another company. This may exist as an attachment to or a stamp directly on the last page or back of the note. The general language is “Pay to the order of _______ (new owner) without recourse _______ (previous owner). When reviewing the allonge, you should make sure that there is a complete chain from the originator of the Note through to the seller’s company.
Mortgage: Also called the security instrument or Deed of Trust, the Mortgage is the document that attaches the debt to a property and should be recorded in the county records to create a lien. Make sure the Mortgage is recorded by looking for a stamp from the county recorder. This will typically include an instrument number or book/page number and will either be a stamp or a sticker on the front or back of the mortgage.
Assignment: Just like the allonge transfers ownership of the Note, the assignment transfers ownership of the Mortgage (or Deed of Trust). Make sure you see a chain of assignments from the originator until the seller’s entity (just like with the allonge). Unlike the allonge, the assignment is recorded in the county records. Make sure to see the recorder’s stamp on the assignments included in the chain. You may find that some of the assignments are recorded but the final assignments in the chain are unrecorded and may need to be filed before you can record the assignment to your entity.
Modification: Many non-performing loans have been modified, especially if you are analyzing a re-performing loan for purchase. The modification is typically recorded and will change the terms of the loan. If the terms of the note don’t match the terms on the seller’s tape, see if you can find a modification agreement on file.
Forbearance Agreement: A forbearance agreement is a type of resolution or workout agreement that is not recorded in the county records. This is a temporary payment agreement that gives the borrower an opportunity to start a trial payment plan. If you see a forbearance agreement in the borrower’s file, make sure to look at the dates to determine when the loan will change back to the original terms or will need to be renegotiated.
Title Policy: Most institutionally originated loans will include a title insurance policy. This policy protects the lender from any issue with title. Take a look at this Exceptions section of this document to see if the loan was originated as a senior lien or if it was junior from the start.
Loan Application: Sometimes the loan application is not included in the seller’s collateral images but if available this will give you an idea of the borrower’s occupation and other details from origination. You will also find the borrower’s social security number on this document if you need it to pull a credit report or run a skip trace.
If you’re researching a re-performing loan to purchase, the servicing records are imperative to closely review. These documents include all of the contact between the servicer and the borrower along with the record of payments received.
Payoff Statement: The payoff statement shows the total balance due in excess of the unpaid principal balance (UPB). This will show the past due interest, late fees and other charges owed by the borrower. If the loan is performing, look for the borrower’s most recent statement to confirm the UPB is accurate to what is included on the seller’s tape.
Correspondence History: This is the contact history between the lender or servicer and the borrower. If the loan is re-performing, this will detail the calls, emails and conversation that got the loan from non-performing to paying again. This is a useful document to check to see if the seller has good phone numbers and email addresses for the borrower. Also, you can get an idea how difficult it has been to get in touch with the borrower.
Payment History: Although basically unnecessary when purchasing non-performing loan s (there aren’t any payments to report), this is arguably the most important servicer document when reviewing a re-performing loan for purchase. A payment history of 6 month or 1 year of consistent payments results in what sellers call a “seasoned” loan. This means that the borrower has a proven track record of payments. You should never pay a re-performing loan price for an asset that hasn’t made at least 6 payments.
VENDOR REPORTS & DATA
BPO: Broker’s Price Opinion, typically costs ~$100, is a third-party report prepared by a real estate agent who has driven by the property, taken photos and reviewed recently sold comps and other properties on the market.
PACER: Public Access to Court Electronic Records, this is the government database of court records where you will find all of the bankruptcy files for anyone in the country. Costs $0.10 per page (capped at $3) per document to review.
Skip Trace: Typically costs <$20, the skip trace is a comprehensive review of every bit of data available on the borrower. This includes (but is not limited to): property records, criminal record, occupation, licenses/permits, voter registration, vehicles, relatives and neighbors.
Title Report: Costs ~$100, is completed by a title researches who reviews the county public records to aggregate all of the recorded documents related to a specific property.
Credit Report: Typically costs <$10, contains all of the borrower’s “trade-lines”. Each trade-line is the type, balance and status of every debt the borrower has incurred.
As you gather and review all of the necessary reports, aggregate all of the information you have collected into a copy of the “tape” (Excel Spreadsheet or Google Sheet) provided by the seller. Compare the information you have independently researched against the data provided by the seller and used to prepare your LOI. If anything is significantly different than expected, use it as a point of leverage to renegotiate your final offer.
MAKING YOUR FINAL OFFER
Once you have completed all of the research necessary to feel comfortable with the deal, reach back out to the seller with your findings and intention to move forward. If everything lines up with what was provided by the seller at the onset, it should be as straightforward as an email to the seller to prepare the contract.
If you are renegotiating the final price or removing asset(s) from the population for sale, make sure to clearly express the reasons you have for reducing the price or pulling a loan, then include the evidence for your reasons. This could mean attaching the BPO showing that the price is significantly less than represented or a title report evidencing that the lien is junior to other unexpected secured debts.