Who should actually hold the payment money, me or a third party?

Rural low price points here, so the servicer fee is a bigger share of my spread than it would be for anyone buying at 300k. On a house where the payment is 640 and my rent is 950, a setup fee plus a monthly fee eats a visible chunk. I still lean servicer on the first one, because the sellers I deal with out here are the exact people who cannot absorb a credit hit, and I'd rather buy the paper trail than explain myself later.

I did four of these direct and it worked until it didn't. The failure wasn't me forgetting to pay. The servicer on one of the loans transferred to a different company, the autopay didn't follow, and I found out from the seller who got a letter. Two weeks of scrambling and it never went 30 days late, but it was pure luck. A servicer would have caught the transfer as part of their job instead of mine.

Flint's point is the whole argument. Running a small team, the question I ask isn't whether I can pay a mortgage on time, it's whether the process survives me being unavailable for three weeks. Direct pay lives in one person's head and one person's bank login. A servicer is a system that keeps running. On deal one you can hold it in your head. By four you can't, and the transition is the part people botch because they wait until something breaks.

The documents are what make me pick a side. In a sub-to your obligation to the seller is contractual, and the seller's obligation to the lender never went away. When that gets tested, someone is going to ask for a payment history, and a statement from a third party with dates and amounts is a better exhibit than screenshots of your checking account. I'd also say the servicer agreement itself forces you to write down things the parties otherwise leave vague, like who covers an escrow shortage.

Wait, I thought the whole point was that the loan stays in the seller's name and the lender never notices. If a servicer is in the middle sending statements around, doesn't that draw attention to the transfer? I'm new and probably missing something obvious about who talks to whom here.

Rigging, a third party servicer sits between you and the seller. They collect from you and remit to the lender. The lender sees a payment arriving in the right amount on the right loan number, which is what they care about. It isn't a disclosure mechanism. I spent a while confused about the same thing because people use the word servicer for both the company that services the seller's mortgage and the company you hire, and those are different animals doing different jobs.

What I keep landing on is that the fee is a fixed cost and the risk it covers is not linear. One missed payment on a seller who trusted you is worse than five years of servicer fees, and it's also the thing most likely to end your ability to find another sub-to seller in a small market. So the math isn't really cost versus cost. Hollow, does word travel that fast where you buy, or am I overweighting reputation?

Looking at this from the lending side, what I'd want to see if I were ever underwriting a refinance on one of these is a clean twenty four month history I didn't have to take your word for. Third party statements do that. Your own bank exports mostly do too, but they're weaker, and you'll be assembling them under time pressure if the loan ever gets called. Confirm with whoever you'd refinance with what they'll accept as a payment history, in writing, before you assume it.

Coming from the trades, this reads like the argument about whether to put a shutoff valve on a line you're already going to solder correctly. You don't install it for the day everything works. Pike's point about learning the workflow while it's cheap is the one I'll remember. The fee is annoying, and annoying is a lot easier to plan for than the seller's credit getting wrecked because a payment amount changed and nobody was watching for it.