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To read our full stories, please turn off your ad blocker. Please forward this error screen to 198. In this difficult real estate market, many real estate investors are starting to look at note investments as a new opportunity to earn above market returns. Learn how to negotiate the best loan investment transaction. Insurance issues relating to loans and REOs. There are many similarities between investing in real estate and investing in notes, including evaluating the collateral, and working with title, escrow and insurance companies. If possible, get an independent interior appraisal, visit or drive by the property.
If the property is older, or has any unique characteristics, you may also wish to have the collateral inspected, just as you would when purchasing real estate. Inspections are easier to conduct when originating new notes than purchasing existing notes because the inspection can be made a condition of the note funding. Once a note is funded, the occupant may not be as cooperative. Just as you want clear title when purchasing a home, so too is the case when investing in a note. For new notes, you will obtain a lender’s policy to insure your note will record in the desired lien position.
Escrows are used to originate new notes but are less common when purchasing existing notes. For a new note, escrow is often collecting borrower signatures, obtaining proof of insurance, and managing the closing of the original note. For an existing note, there is less for escrow to do because the note has already been funded. Instead of a traditional escrow, many purchasers of existing notes use a sub-escrow which is managed by the title company.
Note investors should make sure the borrower has appropriate insurance for the collateral and that the note investor is listed as the Mortgagee on the Evidence of Insurance certificate issued by the insurance company. When listed as a Mortgagee on the insurance policy, the insurance company knows to issue a check to both the Mortgagee and the Borrower. Although the investment in notes is similar to purchasing real estate, there are a few significant differences. The first difference is the most obvious.