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By now you should know that my column is typically called “The Elephant In The Room.” The reason I chose this as a title is that it reflects the large actions and ideas that note investors have about investing which are usually erroneous and always seem unknown, or at least questioned. Well, I have another elephant to discuss today.
Today I want to talk about the costs of doing business. Many of you, as investors, have never been business owners before and so the concept of “the cost of doing business” is somewhat foreign and likely, you are looking at all the ways in which you can diminish these costs more than any other. I want to stop you right now and say, “beware.” The costs of business are (or at least should be) counted as part of your investment.
The cost of business is often what allows you to do business. Without these costs, profit is not realized. Could you imagine trying to foreclose without paying the attorney or the judicial system? Nothing would get done!
Likewise, other costs of business need to be examined in detail before you arbitrarily decide to refrain from paying these, especially when these costs may seem voluntary.
Today, I’d like to talk about recording assignments and the costs involved. First of all, though, it is helpful to understand what assignment recordings are and why they are helpful.
An assignment of mortgage is a document which indicates that a mortgage has been transferred from the original lender to another lender or investor. Assignments of mortgage are more commonly seen when lenders sell mortgages to other lenders. That’s where we are. We buy the loan and so the loan is assigned to us.
The problem is, then, when a loan holder fails to record that assignment. You see, in order to collect payments you have to be the owner of the loan. The only way for people to see that you are the owner is to have your assignment recorded.
So let’s list some of the cons of not recording. First of all, if the property is sold at tax sale and your assignment is not recorded you will not be notified of the sale, if you hold a second mortgage and your mortgage is not recorded and the first lien holder starts foreclosure you will not be notified of the sale.
Beyond that, though, if your assignment is not recorded a sophisticated borrower may check the county recorders office to see if your assignment has been recorded and if has not. They may refuse to pay on your loan or the borrower may feel you are being fraudulent in collection, they may contact their attorney general or hire an attorney.
Finally, every states laws vary on the legality of unrecorded loans. Quoted below is Florida’s law (Title XL; Chapter 701, 2013 Florida Statutes) which states effectively that the loan actually has no value (and thus cannot be collected upon) without an assignment.
Read the language here, carefully: “An assignment of a mortgage upon real property or of any interest therein, is not good or effectual in law or equity, against creditors or subsequent purchasers, for a valuable consideration, and without notice, unless the assignment is contained in a document that, in its title, indicates an assignment of mortgage and is recorded according to law.”
Now, it is not my place to give you advice, especially legal advice, so I won’t tell you what you have to do regarding the recording of assignments, but really, consider carefully your decision of a $50 assignment against a $50k loan and ask yourself if the cost of doing business is really all that great?