Brokering notes to Private Investors or to Self Directed IRA Account

Dec 30, 2017

Brokering notes to Private Investors or to Self Directed IRA Accounts was a strong theme at this past convention. I have always urged our broker relationships to take the leap and buy notes for themselves as I feel it will ultimately hone their craft further. The emotional swings that come along with pulling the trigger on that outbound wire is something I feel all brokers need to experience.

When brokering to institutional buyers one simply gets the deal signed up to a Purchase and Sale Agreement, gathers up governing documents, pay history, declarations page for hazard insurance and contact information of all parties and forwards to the buyer for due diligence. Soon after a stipulations (stip) list comes back to the broker with items needed to complete the purchase.

When purchasing for yourself or ( working with private investors) you get to wear that hat as well. Nothing screams professionalism or garners referrals like pride in presentation does. Some of your institutional buyers may accept submission packages by fax or e-mail. A tabbed out file jacket with a cover letter with amortization schedules, credit reports, copies of recorded documents, etc. is the better route. Private Investors often show the deal to their tax council or attorney, so make it easier for all involved. (think referrals too). Make sure all of the documents are legible and complete, not cut off, etc. as these are the documents everyone will be working with up through funding.

For purposes of a submission package, consider the following:

Verification of physical street address, zip, etc. (does it tie back to the county tax rolls and can you pull up the property on Mapquest or Google/Yahoo maps? If possible, secure a current photo or street view of the collateral to further assist the investor. Print out the tax roll information and check that it ties back to the transaction properly as to owner of record, address, legal and description of improvements and that all taxes are paid current. Be sure to print out your efforts (street view, tax rolls, etc) and include them in the file.

  • Legible documents, preferably recorded copies. Read them line by line for the usual protective covenants.
  • Late payment fee.
  • Due on sale clause.
  • Provisions to pay delinquent taxes or forced place insurance or maintain HOA fees current and add to the loan balance at the default rate.
  • Discounts for early payoff (prepayment incentives).
  • Default interest rate for matured and unpaid amounts.
  • Personal guarantee/two income household.
  • Release clauses(s) or offset language (potential deal killer)
  • Reasonable third party fees to enforce collection of debt instrument