Questions About Discounted Mortgages
How is my investment protected if the property is destroyed by fire?
If your security includes structural improvements you should have a copy of the fire policy and be named on a lenders loss payable endorsement. The endorsement also requires notification if the policy is going to be terminated.
When considering selling my mortgage must I sell the entire mortgage?
No! Many sellers sell only a portion of their mortgage to obtain cash for a specific use such as down payment on real estate, to payoff high interest rate debt, or pay college expenses. Partial sales are particularly beneficial for long term mortgages or small down payment transactions.
What should be done if my purchaser sells the property and a new payor wishes to assume the mortgage?
Your options depend upon the term of the mortgage. Some are silent, some allow you to “qualify” the new payor before assumption, and some contain a “due on sale” clause which would allow you to call the loan due and payable.
How do I protect my security against waste or misuse of the property?
Most Deeds of Trust or Contract forms contain clauses prohibiting waste or misuse. It’s a good idea to visit the property annually to see what is happening. If waste is being committed, you may declare a non monetary default and start recovery of your security.
What should I do if I don’t receive payment on my mortgage?
Don’t Delay! Contact the payor immediately anytime the payment is more than 10 days late to determine the root of the problem and how it can be solved. Proper payment administration is very important and can effect the value of your mortgage. Contact your attorney as soon as you determine the problem requires a default notice.
What should be done if my purchaser does not pay his/her real estate taxes?
Most mortgages contain clauses requiring the payor to pay taxes when due. If taxes are not paid, the purchaser is in default and should be notified. Unpaid taxes can jeopardize the safety of your investment and its value to a potential buyer.
What factors determine if I should sell all or part of my mortgage at a discount for immediate cash?
You should know how you are going to use the proceeds. Are you going to pay off high interest obligations, make an investment, pay down a mortgage, or use it for another purpose? If the use of the funds will save more interest than the discount, or produce a higher return, then a sale makes economic sense.
Should I have a professional service collect my payments?
Yes! A professional service will ensure that payments are applied accurately and they will do the required year end tax reporting of interest. A document payment history also improves the salability of your mortgage.
What documents should I protect against damage or loss?
The most important document to safeguard is the original Note (where applicable) since it is the only evidence of debt. While the original Deed of Trust or Contract are recorded documents which can be replaced if lost.
What happens to the value of my mortgage when interest rates rise?
Your fixed rate mortgage acts much like a bond; when interest rates rise, the value of your mortgage decreases, while the opposite is true when rates fall.
What should I do about an upcoming balloon payment due on my mortgage?
Notify the payor, in writing, at least 60 days prior to the due date. Most payors need to obtain financing elsewhere if the balloon payment is large enough. The notice will allow the payor time to obtain a new loan or negotiate with you to extend.