The 1031 Exchange Institute

Welcome to The 1031 Exchange Institute™. The 1031 Exchange Institute is your complete online resource for 1031 exchange, 1033 exchange, 1034 exchange, 721 exchange, 453 installment sale and 121 exclusion information.  Information will also be provided regarding Self-Directed IRAs, including Traditional IRAs, ROTH IRAs, SEP-IRAs and SIMPLE IRAs. 

The 1031 Exchange Institute is dedicated to educating and informing real estate investors and their advisors on the benefits of 1031 tax-deferred exchanges and other tax deferred and tax exlcusion strategies so they can make better informed investment decisions.

NOTE QUEEN:
OWNER FINANCING STRATEGIES

Welcome to the Note Queen: Owner Financing Strategies Blog™.  The Note Queen: Owner Financing Strategies Blog is sponsored by The 1031 Exchange Institute to help educate and inform real estate investors and their advisors so they can make better informed investment decisions on seller carry back notes or seller financing. 

This Blog will cover all things related to creating, selling, buying and brokering seller carry back notes and seller financing strategies.  You are welcome to post a comment on any of the articles or ask follow-up questions, but please no solicitations or SPAM posts.

Tuesday
Jan042011

When You Want to Sell Your Note Provide Pay History and Insurance

There's a woman in Florida who sold a property on terms, offering owner financing to a man who put down $10,000, and who has been paying her $962/month for the last 8 years on a 24-year $145,000 note.

Now she wants to sell the note to buy a piece of property all cash, and I made an offer to buy it.

Everything was going perfectly with processing the paperwork until I asked her to provide the payment history for the last 12 months, and proof of insurance listing her as Loss Payee or Additional Insured.  She had neither.

He pays her with a money order, and she simply cashes it.  No canceled checks, no bank statements.  Because she hasn't filed tax returns for several years, and doesn't want to show any income, she stays low on the economic radar.

So how do I know whether I'm buying a performing note, or a non-performing note?  Can I really just take her word for it?  That's a tough one.

Regarding insurance... she said that after 7 years, she no longer required him to have property insurance, because "he was taking such good care of the property".  So, if the house burned down, there would be no collateral securing the note.  Or if someone hurt themselves on the property, there could be huge liability issues compromising the security for the note. 

The value of that $145,000 note could evaporate overnight.

So, when you're carrying paper, and you want to maintain the value of your note in case you ever need to sell it, be sure to document the payments you're receiving (using a note servicer is a great idea), and make sure that hazard insurance NEVER lapses on the property.

Make sure each year you get verification that the Payor has renewed insurance and that you are still listed as Loss Payee.