New Real Estate Loans:
IRAs can loan money for the purchase of real estate including property owned by the IRA, but not persons defined in prohibited transactions. The IRA should insist that the buyer complete a detailed loan application form and thoroughly verify all of the information the buyer provides. That includes running a credit check and verifying employment, assets, financial claims, references, and other background information and documentation. The IRA owner is responsible for negotiating mortgage rates and terms with the borrower.
Loan closings should be held in a title company or attorney’s office and a mortgagee title insurance policy issued in the name of the IRA.
Hiring a Loan Servicing Company
The IRA can hire a loan servicing company to help draw up the mortgage, mail statements to the buyers, collect payments, and otherwise administer the mortgage. If loan payments are made to the IRA, the IRA owner is responsible for keeping a record of principal, interest and escrow.
Preexisting Notes, also referred to as cash flows, mortgages, trust deeds, paper:
A note is a debt. When you buy a note, you buy a debt. A note is always written. It is never just an oral agreement. A note is signed by the payor, the party who owes the money. When you buy notes, you’re actually buying a certain kind of note: a seller-financed note. This type of note originates when a real estate owner sells property to a buyer and extends credit for any amount left owing after the down payment, plus interest. The debt is between the seller of the property and the buyer. The buyer of the property becomes the payor on the note. The seller of the property receives the payments made by the payor. You can buy the seller-held note for cash — at a discount. You will pay less than the full amount owing on the note, and you will receive payments over time from the payor for the full amount. It’s a three-cornered relationship: you, the seller and the payor which is different than making a new real estate loan.
Things to ask for:
- Copy of note and deed of trust document or other mortgage documents
- Verification of payment history
- Copy of HUD statement for original purchase
- Statement verifying types and amount of improvements/rehabs completed
- Copy of latest real estate tax bill
- Copy of hazard insurance policy
- Verification of title insurance