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The buyer's diligence found the one thing I had stopped thinking about on my own note

carlos_nunezActive
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Two years ago I sold a rehabbed house to a buyer who couldn't get a conventional loan. Decent down payment, I carried the balance at 8.5 with a twenty year amortization on a five year balloon. He paid on the first of the month for twenty-six months straight. I stopped thinking about it. It was the calmest thing I owned.

This spring I needed cash for two projects at once so I put the note out to a couple of buyers. First one who got serious sent a diligence list and the second item was proof of current hazard insurance with my entity named as mortgagee.

It had lapsed. Fourteen months earlier. The borrower switched carriers to save money and never sent the new declarations page to anybody, and I wasn't escrowing because I'd set the whole thing up on a handshake plus a promissory note plus a recorded mortgage and no servicer. So for fourteen months my collateral was an uninsured house and I was congratulating myself on how passive it was.

Got it fixed in nine days. Borrower was embarrassed and cooperative. The buyer still repriced me, went from 92 to about 88 of balance, and said flatly that a seller who doesn't know the insurance status doesn't know the taxes either. He was right, I checked the county and the taxes were paid, which was luck.

Sold at 88. Deserved 88.

6 replies

jordan_ellis2ActivePRO6
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This is the most useful thing I've read all week, six months of research and zero deals in. The failure wasn't the borrower. He paid every month. The failure was that nobody was watching the two things that protect the house.

stephen_ok9CO2CPRO6
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@quarry did the buyer explain how he'd monitor it going forward, or is that just what a servicer does? I'd assumed escrow was standard on carried paper and apparently it's a choice.

jessreyes12AU1APRO8
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Asking the embarrassed question: if the house had burned in month nine of those fourteen, what actually happens to you? The borrower still owes the money, but he's got no house and probably no way to pay.

joe_delgado5AP4CPRO6
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@compass that's the whole reason the clause exists. You'd be an unsecured creditor chasing a guy standing in a driveway. @quarry a 4 point haircut for that is cheap, I've been hit harder for less.

derekj19SB1B
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The servicer angle again. Every one of these stories ends with somebody wishing a third party had been watching a boring field on a spreadsheet for them.