Confirm that the seller is who they say they are, that they own the note, and that they have the authority to sell it. Work from public records and original documents, and treat the seller’s own summary as a claim to test. Then close through a title company or attorney, so your money is released only when the documents are delivered.
Who you are dealing with
What you ask for depends on what kind of seller it is.
| Seller | What to see |
|---|---|
| An individual | Government photo ID that matches the name on the note and the recorded lien |
| A company | The state’s business registry record showing it exists and is active, plus the document that names who can sign for it |
| An estate | The court papers appointing the executor or administrator |
| A trust | The pages of the trust, or a certification, naming the trustee and their power to sell |
If two people are named on the note, expect both to sign. If one has died, ask an attorney what that state requires before going further.
Whether they own the note
Ownership shows up in two places, and the two have to agree. The first is the county record. The mortgage or deed of trust, and every assignment since, should lead to your seller with no gap, and an ownership and encumbrance report lays that chain out. The second is the note itself, which should be payable to the seller or endorsed to them. Ask to see the original, or a full copy with every endorsement page, before you commit.
The same search should show whether the note has already been pledged to a lender or assigned to someone else. The papers that prove all this make up the collateral file.
Whether the loan is what they say it is
A real seller can still describe a note wrongly, so check the claims that set the price.
- Payment history. Take it from a servicer’s ledger or from bank statements showing the deposits. A typed list of dates proves nothing by itself.
- Current balance. Work it out from the note’s terms and the payments made, and compare your figure with the seller’s.
- The borrower’s confirmation. An estoppel letter is a statement signed by the borrower confirming the balance, the payment, the last date paid and that they have no dispute with the lender. It is the one check that comes from the person making the payments.
Holder or middleman
Some notes are offered by brokers, or by people who have a note under contract and intend to resell it. Either arrangement is fine once it is disclosed. Ask directly: do you own this note today, or are you bringing it to me for someone else? If it is the second, run the checks above on the true owner, and find out how the person in the middle is being paid. We are in that position ourselves on the notes we broker, so if you join the buyer list, put the same question to us and ask for the documents behind any statement we make about a note.
Warning signs
- A request to send a deposit straight to the seller before any documents are reviewed.
- No original note and no clear explanation of where it is.
- Refusal to allow any contact with the borrower or the servicer, even through a third party.
- Names that do not match across the note, the recorded lien and the seller’s ID.
- Wire instructions that arrive or change by email. Confirm them by calling a number you looked up yourself.
- Pressure to close before your checks are finished.
One of these calls for a question. Several together are a reason to walk away.
What the closing adds
Your own review can be backed up by the way the closing is set up. In escrow, a title company or attorney holds your funds and releases them only when the endorsed note, the assignment and the other originals are in hand.
The contract does the rest. In the note sale agreement the seller states in writing that they own the note, that the balance is as described and that the note is not pledged or in dispute, and the agreement says what the seller must do if a statement turns out to be false, such as buying the note back. A buy-back promise is worth only what the seller can pay on the day you call on it, which is the reason the checks come before the signature.
Putting the seller checks with the rest
A verified seller can still be selling a weak note. The seller checks sit beside the property and payer checks on the due diligence checklist for note buyers, and all of them belong to the purchase described in the investor guide.
Keep what you gathered. Copies of the ID or registry record, the recorded chain and the estoppel letter go in your file with the note, because a buyer will put the questions on this page to you if you ever sell it.
Related questions
Is it a problem if the seller is a broker and not the note holder?
No, as long as it is disclosed. A broker brings a note from its owner to a buyer and is paid for doing so. Your ownership and identity checks then apply to the actual owner, who is the one signing the assignment.
Should I contact the borrower before buying a note?
Not directly without the seller's agreement, since the note is still theirs. The usual route is an estoppel letter sent through the seller, the servicer or the closing agent, in which the borrower confirms the balance and terms in writing.
What if the seller will not let me see the original note before closing?
Ask why and where it is held. It is reasonable for a seller to keep the original until funding, but you should see a complete copy and have the original delivered to the closing agent before your money is released.