Ask about the note’s terms, the payer, the property, the paperwork and the person selling, and then ask yourself what you would do if the payments stopped next month. A note is worth buying when each answer has a document behind it.
The groups below run in the order that saves time. The early questions cost nothing to ask, and they can rule a note out before you have paid for a title search.
About the note
- What is the unpaid principal balance today, and how was it worked out?
- What are the interest rate, the monthly payment and the number of payments left, and do those three produce that balance?
- Is there a balloon, meaning a lump sum due before the note would otherwise be paid off? When does it fall due, and how will the payer meet it?
- Has the note ever been modified, and is the change in writing?
- Is it a first lien or a second? If a second, what is owed ahead of it and is that loan current?
About the payer
- How many payments have been made, and how many were late?
- Can the payment history be proved by a servicer’s record or bank statements, beyond a handwritten ledger?
- How much did the payer put down at the start? A payer with their own money in the property has more to lose by walking away.
- Does the payer live in the property, rent it out or leave it empty?
- Are property taxes and insurance paid up, and who pays them?
About the property
- What is it worth today, according to whom, and as of what date?
- What kind of property is it, and how easily would it sell in that area?
- What condition is it in, and has anyone seen it recently?
- How does your price compare with that value? This is your investment-to-value, the share of the property’s worth that your money represents.
About the paperwork
- Does the seller hold the original note?
- Was the mortgage or deed of trust recorded, and where?
- If the note has been sold before, is every assignment in the file?
- Was a title policy issued when the loan was made?
- What does a current title search show?
The documents that answer these make up the collateral file. Compare what the seller sends with what is in a collateral file and ask about anything absent.
About the seller and the deal
- Why is the note being sold?
- Is the seller the person named on the note, or someone acting for them? What shows their authority?
- What will the seller state in writing about the note, and what happens if a statement is wrong?
- How long do I have to check the file before I must fund?
- Who holds the money and documents at closing?
- If a broker is involved, what does the broker earn and who pays it?
Check the answers to the first two yourself. Verifying a note seller means confirming identity and ownership from records the seller did not prepare.
Questions for yourself
- What yield does this price give me if every payment arrives, and what if the note pays off early?
- If the payer stopped next month, what would I do, what would it cost and could I afford the wait?
- Do I know how default is handled in that state, or who to ask?
- Who will service the note?
- Could I leave this money where it is for the full term?
Weighing the answers
| Kind of answer | What to do |
|---|---|
| Backed by a document | Accept it, and keep the document |
| Stated but not yet proved | Make your offer subject to proof |
| “I don’t know” | Find out yourself before funding, and allow for the cost |
| Avoided, or met with a push to hurry | Step back |
A private holder who created a single note and never expected to sell it may honestly not know some of this. Treat that as a gap to fill yourself. A seller who will not let you check belongs in the last row of the table.
A weak answer can also be priced instead of refused, because a thin payment record or a missing document raises the yield a careful buyer needs, and that lowers the offer.
Turning answers into proof
Each question here has a document or a check that settles it, and the two are paired in our due diligence checklist for note buyers. In a real purchase they come up in stages, following the sequence in the investor guide, so you will not be asking all of them on the first call. Notes sent to people who join the buyer list come with the worksheet behind the price, including what we earn, so the broker question above is answered before you have to ask it.
Related questions
What is the most useful single question to ask a note seller?
Ask to see the payment history and how it can be proved. It tells you about the payer, the seller's record keeping and whether the balance is right, all at once.
Should I contact the payer before I buy a note?
Confirming the balance and terms with the payer in writing before closing is a sound check, and it is arranged through the seller. Agree with the seller how and when it happens so the payer is not alarmed.
What if the seller cannot answer my questions?
A private holder who created one note may not know the details. You can find a good part of the answers yourself from the documents, a title search and the county records. Allow for that cost and time in your offer.