There are three critical documents you’ll want to have on hand when purchasing a note. They are a description of the ticket you bought, as well as proof that you now own it without dispute.
Since there are an almost infinite number of variations of these documents, I will not show the actual ones, but instead describe what they are for and what the critical components are. You can use this as a checklist when the seller provides them.
The first is an Accounts Receivable Purchase and Sale Agreement. It lists the buyer, the seller, the account receivable (the promissory note), and what has been agreed upon.
The first section the Agreement needs is a description of the Account Receivable itself. Look for these:
- Type of security instrument (mortgage or deed of trust, depending on the state)
- original purchaser
- original lender
- Date
- recording information
- unpaid balance
- Monthly payments
- Interest rate
- Number of payments remaining
There may be a section that lists other documents requested by the buyer. These could include:
- Credit report on note payer
- Recent appraisal or other property valuation
- insurance declaration page
- Payment history
- Preliminary Title Insurance Commitment
- original notes
- Mortgage Assignment
- Note Endorsement
There will be a section outlining the purchase price and how it will be paid for.
The Agreement I use has a section for Seller Warranties. This is where the seller of the note claims to be the true owner of the note. If the seller is a corporation, the board has agreed to the sale. They can state that they are unaware of asbestos on the property. Please read them carefully and ask questions if you are not sure what they mean.
The other two critical documents have already been listed, but should also have their own page.
The assignment of the mortgage or deed of trust is proof that you or your entity now have the ability to obtain the property through foreclosure if the borrower defaults. This is the “security instrument” defined in the Purchase and Sale Agreement.
It will say something like: “The Assignor hereby grants, sells, assigns, transfers and assigns all beneficial interests under that particular Mortgage described below…” My version goes further, but has the idea that the seller is transferring all of his rights under the Mortgage to you.
You will probably see many of the following lines:
- original lender
- Borrower(s)
- Date
- Original loan amount
- Property Address
- Legal Description
- recording information
The Assignment must be signed and notarized.
The last document also transfers ownership, but of the note itself. This is called Allonge al Promissory Note, or sometimes just Allonge.
The Lengthen is the shortest and simplest of the three. Simply list:
- Loan number
- Original loan amount
- Qualification Date
- Borrower(s)
- Property Address
Then it will say:
Assigned by (the Assignor)
Pay to the order of (you or your entity)
Critically, make sure it says NO RECOURSE. It will be signed by the seller but does not need a notary.
In earlier times, the original bill could be turned over and “Pay to the order of…” written on the back like a check. Stretch seems to be the preferred method now.
I wanted to save an exception from all of this for last. So far we have described the sale of a home through a note and mortgage or deed of trust. However, many of the notes we see are actually Land Contracts. This is a hybrid form that combines the promise to pay and the guarantee agreement in a single document. In this case, the seller keeps the deed until the obligation is paid.
If you are buying a Land Contract, instead of getting a Mortgage Assignment and Extension, you will get a Seller’s Assignment of Interest in the Land Contract. These may also be called a Contract of Sale or Contract of Deed.
Once you have all these documents in hand, you will be the proud owner of the paper and you can now register the appropriate documents in the county where the property is located.