Latest / Real Estate Note Investing / Episode 59: Closing the Deal

Transcript

Episode 59: Closing the Deal · Real Estate Note Investing

• 0:00
  SPEAKER_00: Welcome to the show, where you'll learn how to invest in mortgage notes, the savvy real estate investor's secret weapon to create cash flow without tenants and property acquisitions for pennies on the dollar.
• 0:12
  SPEAKER_00: My name is Robert Haitha, founder of Picknotes, and my mission is to make note investing ethical, profitable, and accessible for you.
• 0:20
  SPEAKER_00: In every episode, we're democratizing the industry to put these powerful Wall Street assets into the hands of mainstream investors like you.
• 0:29
  SPEAKER_00: So without further ado, let's get into this show where you're in good hands with my AI clone.
• 0:34
  SPEAKER_00: Let's go.
• 0:37
  SPEAKER_00: This program is for informational purposes only and should be independently verified before taking action.
• 0:44
  SPEAKER_00: Closing a mortgage note purchase is the moment where all of your due diligence work converts into a real asset on your books.
• 0:51
  SPEAKER_00: It is a multi-step process with a specific sequence, and understanding each step before you go through it the first time means fewer surprises and a cleaner transaction for both you and your seller.
• 1:01
  SPEAKER_00: The document that governs the closing is the loan purchase and sale agreement, commonly called an LPSA or PSA.
• 1:08
  SPEAKER_00: This is the contract between buyer and seller, and it is the most important document you will sign in any note transaction.
• 1:14
  SPEAKER_00: Before you put pen to paper, confirm that the seller named in the agreement matches the entity that appears as the most recent recorded assigned E in the chain of title on each loan.
• 1:23
  SPEAKER_00: If the name in the contract does not match the name in the assignment chain, you have a documentation problem that needs to be resolved before you fund.
• 1:30
  SPEAKER_00: You are supposed to be buying from the entity that actually owns the loan.
• 1:34
  SPEAKER_00: Inside the agreement, the two dates you need to understand precisely are the closing date and the cutoff date.
• 1:39
  SPEAKER_00: The closing date is the date you wire your funds.
• 1:42
  SPEAKER_00: The cutoff date is the date ownership of a loan's transfers.
• 1:45
  SPEAKER_00: The moment at which all payments, activity, and economic interest in the loans becomes yours.
• 1:49
  SPEAKER_00: These two dates are often the same, but not always.
• 1:52
  SPEAKER_00: If a borrower makes a payment after the cutoff date, but before the closing date, that payment belongs to you as the new owner, even though you had not yet wired your funds.
• 1:59
  SPEAKER_00: Conversely, if a loan pays off before the cutoff date, that payoff belongs to the seller and the loan is effectively removed from the portfolio you are buying.
• 2:08
  SPEAKER_00: Understanding these mechanics prevents disputes after the fact.
• 2:11
  SPEAKER_00: The representations and warranty section of the agreement is where your buyer protections live.
• 2:16
  SPEAKER_00: This is the section that tells you what the seller is legally committing to about the assets they are selling.
• 2:22
  SPEAKER_00: The most important seller representations to look for are that the unpaid principal balances are accurate and match the loan schedule attached as an exhibit, that the chain of title is complete with proper assignments and endorsements, that copies of all loan modification agreements have been provided, and that the seller has the authority to complete the sale.
• 2:40
  SPEAKER_00: Read this section carefully.
• 2:42
  SPEAKER_00: The strength of your recourse, if something turns out to be wrong, depends entirely on what representations the seller has made and whether the agreement includes a repurchase obligation if those representations are breached.
• 2:54
  SPEAKER_00: The repurchase provision is the enforcement mechanism behind the representations and warranties.
• 3:00
  SPEAKER_00: If you close on a loan, receive the collateral file, and discover that the assignment chain is broken and the seller cannot cure the defect within the required timeframe, the repurchase provision is what compels them to buy the loan back.
• 3:12
  SPEAKER_00: Without it, you have a representation that was breached and no practical remedy.
• 3:16
  SPEAKER_00: Not every seller will offer a strong repurchase provision.
• 3:20
  SPEAKER_00: Some agreements are explicitly as is with no repurchase rights, and that changes how aggressively you should price those assets in your bid.
• 3:27
  SPEAKER_00: When there is no repurchase protection, your due diligence needs to be more thorough, not less.
• 3:32
  SPEAKER_00: On funding day, you wire the purchase price to the seller or to a third-party escrow company if one has been arranged.
• 3:39
  SPEAKER_00: At the same time, provide your servicing transfer instructions and your collateral delivery instructions so the seller can initiate both processes without any delay.
• 3:49
  SPEAKER_00: The servicing transfer.
• 3:51
  SPEAKER_00: Moving the loan administration from the seller's servicer to yours typically takes a few weeks to process internally at both servicers.
• 3:58
  SPEAKER_00: Your collateral files, the physical loan documents, should arrive at your office or your document custodian within roughly 30 days of funding.
• 4:06
  SPEAKER_00: Once your collateral files arrive, your job is to audit them immediately.
• 4:10
  SPEAKER_00: Confirm that the original Wet Inc.
• 4:12
  SPEAKER_00: note is present and has no defects.
• 4:14
  SPEAKER_00: Confirm that the allonge is physically attached to the note and that the endorsement chain matches the assignment chain in the public record.
• 4:21
  SPEAKER_00: Confirm that the recorded assignment naming you as the current lien holder is included in the file.
• 4:26
  SPEAKER_00: If anything is missing or inconsistent, prepare a collateral exception report and send it to the seller within your contract's cure period.
• 4:33
  SPEAKER_00: Typically 30 to 90 days depending on what was negotiated.
• 4:37
  SPEAKER_00: The exception report formally notifies the seller of the breach and starts the clock on their obligation to cure.
• 4:42
  SPEAKER_00: After your collateral audit, the final step is to record your assignment of mortgage in the county where the property is located.
• 4:49
  SPEAKER_00: This is the step that makes you visible in the public record as the current lien holder and triggers all of the automatic notifications we talked about in the portfolio monitoring episode.
• 4:58
  SPEAKER_00: Do not skip it, do not delay it.
• 5:00
  SPEAKER_00: It is the last action that fully completes your acquisition.
• 5:02
  SPEAKER_00: Next time we are going to talk about raising capital, how note investors fund deals beyond their own savings and the different structures investors use to bring outside money into their business.
• 5:13
  SPEAKER_00: Thanks for sticking around to the end, and thank you to my trusty Robot and the Fixed Notes team for putting together another episode.
• 5:20
  SPEAKER_00: If you want to learn more and hang out with the real not AI version of me, join our free school community at school.com slash fixed notes.
• 5:29
  SPEAKER_00: That's s k-o-l.com slash f I X N O T E S.
• 5:35
  SPEAKER_00: In the meantime, we'll see you in the next episode.