Welcome to this week’s lesson! We’re diving into “Three Steps to Avoiding Servicing Nightmares.” Joining me are two industry pros: Paul O’Dwyer and Mike Powell. If you don’t have a mentor or someone better than you in your circle, start working on that now.
Understanding Servicing
Servicing is a critical aspect of real estate. It involves using a third party to manage the collection of payments, escrows, tax documents, and more. The servicer ensures all payments are made correctly and provides annual statements.
Step 1: Recognize the Liabilities
Compliance and Regulations
Managing your own servicing can expose you to significant liabilities. The most crucial factor here is compliance with debt collection laws. Ignorance of these laws can lead to severe penalties.
Complaints and Legal Issues
In Texas, a whopping 95% of complaints to the Savings and Mortgage Loan Commissioner were related to servicing issues. These complaints can come from misunderstanding simple concepts like escrow. Even a minor mistake in servicing can land you in hot water.
Avoid Self-Servicing Pitfalls
You might think self-servicing saves money, but it often leads to more headaches. Until you’ve managed at least 40-50 notes, stick to third-party servicers to avoid making costly mistakes.
Step 2: Value Your Time
The Cost of In-House Servicing
Servicing notes isn’t just about following complex rules; it takes up a lot of time. You’d need a robust software program, and a decent one costs between $700 and $25,000 annually.
Focus on High-Value Tasks
Your time is best spent making deals, not managing spreadsheets. Handing off servicing to a third-party allows you to focus on what you do best: closing deals and bringing in revenue.
Step 3: Choosing the Right Servicer
Finding a Trustworthy Partner
Selecting the right servicer is crucial. Look for companies with strong technology platforms that offer online payments, good customer service, and transparent reporting.
Mutual Respect and Industry Knowledge
Choose servicers who understand the real estate industry. If they also hold notes themselves, that’s a good sign they know what they’re doing. Make sure they understand their role and respect your expertise as the investor.
Reliable Third-Party Servicers
Good servicers should handle everything seamlessly, from collections to escrow analysis, without you needing to step in frequently. A reliable servicer also provides you with solid documentation, which is crucial if you plan to sell notes down the line.
Takeaway
Navigating the complexities of loan servicing is critical to the success and sustainability of your real estate investments. By recognizing the liabilities, valuing your time, and choosing the right third-party servicer, you can avoid common pitfalls and focus on high-value tasks. Remember, leveraging the expertise of seasoned professionals like Paul O’Dwyer and Mike Powell can provide invaluable insights and mentorship.
Ensuring that you have a reliable servicer can save you from costly mistakes and allow you to concentrate on growing your portfolio. Invest in the right partnerships and make informed decisions to secure a smooth and profitable servicing experience.
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