If you have not already read the previous three parts of this article, you can find them here:
How to Invest in Real Estate Notes — Part 1
How to Invest in Real Estate Notes — Part 2
How to Invest in Real Estate Notes — Part 3
Now we come to the final stage of buying a real estate note, with you becoming a full-fledged mortgage note buyer. The mortgage note seller has already provided you with all of the documents and information that you require, and you as the mortgage note buyer have received and verified the documents, as well as having a title company verify that there are no liens against the property.
Of course, you will also want to verify the value of the property. For our company and most others, the appraisal is actually completed before getting a title policy. By appraisal, we generally mean a full appraisal, a 2055 appraisal, or a BPO.
A full appraisal is the one with which most people are familiar. The appraiser fully inspects the interior and exterior of the property, checks the value of similar
properties, adds or subtracts to compensate for relative advantages/disadvantages of the subject property, and provides to the client a full report. This is the most detailed type of appraisal for most property types. It is also the most costly and time consuming, so is done less frequently by mortgage buyers.
A 2055 appraisal is similar to the full appraisal but is not as comprehensive and does not require the appraiser to enter the property to take pictures and inspect. This type of
appraisal is done more often by mortgage buyers, as it does not require the cooperation or even knowledge of the property owner.
The Broker Price Opinion (BPO) is conducted by a realtor or other person who is knowledgeable about real estate but not licensed as an appraiser. As a mortgage buyer, you are most likely to use a BPO to establish value, as it is cheaper and faster than
formal appraisals. However, it may not be appropriate for opportunities where it is critical to see the interior or for some commercial properties.
Once the property value has been verified by the appraisal and the due diligence is complete, it is time for the final step. When preparing documents to buy the mortgage
note, make sure that your assignment document is legal and covers all future possibilities. The package that goes to the person wanting to sell the real estate note includes at a minimum:
1) Comprehensive purchase agreement and associated documents
2) Letters signed by the mortgage note holder that will later go to the payer and to the insurance company informing them of the change in payee and insured, respectively.
3) W-9 for tax purposes
The purchase agreement should be notarized, while the other documents should be signed by all parties listed on original documents as payees. The holder of the mortgage note
must also return the ORIGINAL note and the ORIGINAL trust deed or mortgage. Once you have received everything, you will want to record the assignment with the county where the property is located.
Of course, this entire article can only provide guidelines for becoming a mortgage note buyer and cannot cover every possibility. At least for your first 2-3 deals, you should
strongly consider working with an experienced mortgage buyer to be sure that you have all of your bases covered. Here’s to your success!