What Happens When a Seller Financed Land Buyer Stops Paying

Transcript of Module 10, lightly edited for readability. The video was recorded before we passed 250 notes; the figures on this page are current.

Welcome to module 10. Your deal is closed, your loan is being professionally serviced, and now you're wondering what happens next? What ongoing work do I have to do? And what happens if the borrower stops paying? In this module, I'm gonna show you exactly what ongoing management looks like. Spoiler alert, it's very minimal, and what to do when things go wrong. I'll also share my background and mortgage defaults.

and how I can support you if you ever face a foreclosure situation.

Let's start with the good news. Ongoing management of a seller finance loan is very minimal. Your servicer is handling all the payment collection. They're sending statements. They're tracking everything. You don't have to do anything related to collecting payments. But there are a few things you need to monitor. First, tax payments. Remember, we structured these loans without escrow initially.

The borrower is responsible for paying property taxes directly to the county. Once or twice a year, go online to the county tax assessor's website and verify that the taxes are current. This takes about two minutes. If the taxes are paid, great. If they're not paid, you need to take action. Here's what you do. Contact your servicer and tell them to add escrow to the loan.

The monthly payment increases to include the tax amount, plus the servicer charges an additional fee to manage the escrow account. The borrower pays for this. Your servicer will then pay the taxes on behalf of the borrower going forward. Always include a provision in your loan documents that allows you to add escrow if the borrower fails to pay taxes. This protects your lien position. Second, Check on the property annually, drive by it or have someone check on it. Make sure it's not being used for something inappropriate. Make sure there's no trash piling up. Make sure it still looks like vacant land and not a junkyard. This is basic asset monitoring. It takes minimal time, but it's important. That's really it for routine ongoing management. Your servicer will do everything else.

Now let's talk about what happens when a payment is late. Most loans perform perfectly. The buyer makes every payment on time, but occasionally you'll have a late payment. And here's how that works. There's a typically a 10-day grace period built into your loan documents. If the payment is due on the first of the month, the borrower has until the 10th to get the payment in without penalty.

After the grace period ends, a late fee applies. Typically, this is about 10% of the monthly payment. So if the payment is $500, the late fee is $50. Your servicer handles all of this automatically. They calculate the late fee, and most importantly, they contact the borrower.

The servicer will call the borrower. They'll send notices. They'll work to collect the payment. You don't have to do any of this. That's what you're paying the servicer for. In most cases, late payments get resolved quickly. The borrower had a temporary cashflow issue. They catch up and everything goes back to normal.

But what if the borrower doesn't catch up? What if they just stop paying altogether? This is when you move toward foreclosure. First, work with your servicer. They'll guide you through the initial steps and the timeline in your specific state. Every state has different foreclosure laws and timelines. Your servicer will know the process. Foreclosure is a straightforward process in every state, though it differs depending on the actual state laws. Some states allow non-judicial foreclosure using the power of sale clause in your deed of trust. This is faster and less expensive. Other states require judicial foreclosure through the court system. This will take longer and cost more. Either way, the process is clear and well established. You're not pioneering new legal territory here.

This is routine creditor's rights work. You'll need an attorney who specializes in foreclosure. Don't use a general practice attorney or a real estate attorney. Use someone who does foreclosure regularly and knows the process inside and out in your state. The attorney will file the necessary paperwork, follow the statutory timeline, and move the case through to the foreclosure sale.

At the foreclosure sale, one of two things happens. Either someone bids on the property and buys you out for what you're owed, or if no one bids, you get the deed to the property. If you get the property back, you can then resell it again. Is foreclosure ideal? No. Does it happen? Occasionally. Is it manageable? Absolutely. The key is having the right systems in place, proper documentation, professional servicing, and access to competent foreclosure attorneys.

Let me tell you about my background because it's relevant here. My background is in mortgage default. I worked in this space for about five years. I understand the foreclosure process. I know how default situations unfold. I've seen hundreds of these cases. This is one of the reasons I'm comfortable buying land notes. I understand the downside risk and I know how to manage it.

And here's what this means for you. If you ever have a default situation, I can help you. I can refer you to a foreclosure attorney in the state where your property is located. I know attorneys across the country who specialize in creditors' rights and foreclosure. I can point you in the right direction. I can also walk you through what to expect, what the timeline looks like, and what decisions you'll need to make along the way.

You don't have to navigate this alone. Whether you're holding the note yourself or you've already sold it to me, I'm here to help if issues arise. But most loans perform perfectly. But if you hit a bump in the road, you have support. Remember, ongoing management of these loans is minimal. Monitor taxes annually. Check on the property. Your servicer will handle payment collection.

If payments are late, the servicer deals with it. If things go to foreclosure, there's a clear process and professional support available. The vast majority of properly structured, properly screened seller finance loans perform without any issues. But now you know what to do if problems arise. In the next module, we'll talk about selling notes, how the process works, what buyers look for.

and how to maximize your value. Let's keep going.