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When speaking with note investors at trade shows and other note events I am often asked, is there anything I should be doing to maximize the value of my note and keep it safe.
This is a pretty general question and usually does not have anything to do with the Miracle Math we use to enhance value. No, it is more to do with the physical loan itself and there are things you must do to ensure the value stays high.
First is the note’s priority. I assume when you purchased the note you thought you were purchasing a first, a second, a third or whatever and your purchase agreement warrants that to be the case. Well, that warrant is meaningless unless you check to see what the note’s actual priority is. This can be done yourself at the county recorder’s office or it can be done for you through a title company. Priority is set by the date of recording.
Second, you should periodically check your note’s ITV (Investment to Value). For example let’s assume you purchased a note on a home with a Fair Market Value (you can probably get a real estate agent to supply you with a Broker’s Price Opinion, BPO) of $175,000. Let’s further assume the note you purchased had an unpaid principal balance of $150,000 and you purchase the note at a discount and paid $100,000. Your Investment ($100,000) to Value ($175,000) would be 57%. $100,000 divided by $175,000. Your investment to value will certainly improve as the home gains value over time.
The third factor in establishing and keeping the value of the loan high is the physical note and trust deed themselves. Certainly we are aware that a promissory note is a highly negotiable instrument and as such can be endorsed over to someone else. The note is not recorded and therefore if lost cannot be obtained from anywhere public. Many noteholder guard against loss or destruction by keeping their notes with a custodian much the same way that many stockholders utilize a custodian to hold the actual share certificates. These custodians will keep your documents safe and secure and can provide you an electronic file for your records.
Remember, your job isn’t finished as soon as you own the loan, you are responsible for its continued value.