Billions of dollars in mortgage notes, deeds of trust and land contracts are held by individuals. And every day more bills are created due to the crisis in both the mortgage credit and the housing market. Homeowners have to act as lenders to sell their home or investment property, creating an asset that they must manage and protect. However, many mortgage note holders are not trained in this process, leaving them exposed to potentially significant financial loss.

So what should you, as a private mortgage note holder, do to protect your valuable asset? Here are some key tasks to help minimize your risk.

  1. Check the mortgagor’s property taxes annually to make sure they are paid on time. If the borrower falls behind on property taxes, you could end up in the middle of a property tax lien sale. You will most likely want to intervene by paying property taxes to avoid this.
  2. Check the mortgagor’s homeowner’s insurance to make sure it is paid up to date. If the mortgagor has not paid for the homeowners insurance and it has expired, you should purchase a policy and have the mortgagor pay your cost monthly.
  3. Review the mortgagor’s homeowner’s insurance coverage annually to make sure it is sufficient to cover the mortgage and that you, as the note holder, are the mortgagee on the policy. This is particularly important in areas of increasing home values.
  4. Inspect the house from the street a couple of times a year for serious signs of deterioration. Some ticket holders have discovered that the mortgagor does not even live there and is renting the house to a friend or family member.
  5. When the mortgagor exhibits a pattern of late payments, check to see if the mortgagors are still employed (Check with your attorney if you can contact the mortgagor’s employer. You may only need to ask the mortgagor). If they are self-employed, please visit us or drive their business to make sure they are still in business or advertising a sign that they are going to close. This is particularly important in these tough economic times with hundreds of thousands of people losing their jobs each month, as well as thousands of businesses closing their doors or filing for bankruptcy.
  6. Check county tax records once or twice a year to see if there are any new links on the property. This could be in the form of a second mortgage, which may not be allowed by the mortgage note agreement, or a state or federal tax lien.
  7. When the mortgagor does not pay the mortgage, immediately contact a qualified real estate attorney. Do not try to resolve something between you and the mortgagor without the advice of a qualified attorney.
  8. Watch for a pattern of late payments, even if the mortgagor is not in default. If you notice such a pattern, immediately investigate other potential problems as mentioned above and take appropriate action.
  9. Be sure to keep detailed records of payments on the note, including the payment date, check number, returned check information, repayment schedule, etc. You will need it in the event of a dispute or default, as well as documentation in case you ever want to sell the note.
  10. Did you buy a title policy at closing? If not, you may want to buy one now to cover your asset.
  11. Lastly, if you are about to create a mortgage note, check with the buyer of a mortgage note to make sure the terms allow you to get the best price should you ever need to sell the note. You also want to be safe and verify the borrower’s credit.

The helpful tips above are not offered as legal advice. Consult an attorney for all legal matters.