My borrower never missed a payment and the loan still cost me 6,840

The detail that will stick with me is the borrower still paying. I'd have assumed a guy skipping two years of taxes was about to skip the mortgage. Apparently people prioritize the bill that has a name and a due date attached to a person who calls them.

We see this on the management side constantly with owner-occupants. The mortgage payment is automatic and the tax bill arrives once or twice a year as a lump they don't have. It's not a character thing, it's a cash flow thing.

harrow, did you look at putting him on an escrow going forward? Whether you can add an escrow requirement to an existing loan depends on the loan documents and on state rules for that kind of change, so that's one to run past an attorney, but if it's available it converts the once-a-year lump into part of his monthly and you stop carrying the risk.

Genuine question because I'm building services around this space. Is a tax and title search before funding something the collateral review vendors do as standard, or is it an add-on you have to ask for? Because if half of new note buyers assume it's included, that's a gap somebody should be filling.

lantern, from what I've been quoted it varies by vendor and it's usually a separate line item. The basic collateral review is a document review, it tells you the file is complete and the endorsements match. It doesn't go look at the parcel.

harrow, thank you for the actual numbers. Six months into research and this is the first thing I've read that made me change an item on my checklist rather than just nod.

So the rule is escrowed loans only, at least starting out? That seems like the simple version of this lesson and I'd rather have a simple version I follow than a complicated one I don't.

verity, escrowed only is a fine starting rule and you'll pass on some good loans for it, which is a reasonable trade while you're learning.

harrow, the part people underrate is how fast tax certificate processes move in some states and how slow they are in others. In one state you might have three or four years of redemption room and the whole thing is an annoyance. In another the window is short and a certificate holder can start a process that costs you the lien while you're still reading the letter. Anyone buying notes across state lines needs to know which kind of state each parcel sits in before funding, and that's a question with a different answer in every one of them.

Asking the thing I'd be too embarrassed to ask out loud. Why does an unpaid tax bill beat a recorded mortgage? I thought recording first meant you were first.

compass, property tax liens generally sit ahead of private liens regardless of when anything was recorded, because the taxing authority's claim comes from statute rather than from the recording order. The exact priority and the process for enforcing it are set by each state, so the mechanics differ, but the general shape holds nearly everywhere. It's the same reason land investors watch tax sales so closely.

Which also means you can't cure it by being early. You cure it by paying, which is what harrow did.

This reads like the rental version of screening a tenant on income and never checking whether they pay their utilities. The payment history tells you one narrow thing about one narrow obligation.

The reserve point at the end is the one I'd underline harder than the tax search. Everyone eventually learns to pull the tax record. The people who get hurt are the ones with zero dry powder when a 6,800 bill lands, because then you're choosing between selling the note into a fire sale bid and letting the position go.

On one performing note I run 5% of UPB in reserve, which felt like dead money for two years and then wasn't. harrow, are you sizing the reserve off UPB or off value?