Note sale compliance is structured. Ten questions cover the territory most sellers and buyers face at closing.

What notice does the borrower receive under §1024.33?

For federally related mortgage loans, Regulation X §1024.33 requires the transferor servicer to send the borrower a Notice of Servicing Transfer no fewer than fifteen days before the effective transfer date, and the transferee servicer to send its own notice no later than fifteen days after the effective date. The notice states the effective date, the new servicer’s contact information, and where to send payments. Business-purpose loans are exempt from §1024.33 but most institutional buyers replicate the notice as a best practice.

What is the §1024.33(c) sixty-day grace period?

For the first sixty days after the effective transfer date, a payment received on time at the old servicer’s address cannot be treated as late by the new servicer. The grace period covers borrower confusion in the transition window. The transferor and transferee servicers should reconcile any payments received during this window through their transfer-of-servicing agreement rather than charging the borrower a late fee.

Does Henson v. Santander insulate a note buyer from FDCPA?

Henson held that a debt buyer collecting on its own account is not a “debt collector” under §1692a(6)’s “owed or due… another” prong. The decision does not eliminate FDCPA exposure under the “principal purpose” prong, state debt-collection statutes, or other federal rules. A buyer relying on Henson should document at acquisition that the buyer is collecting on its own account, not as agent.

When does the buyer need a state servicer license?

States that require a mortgage servicer license — including California, New York, Maryland, Washington, and many others — apply the requirement when the buyer self-services or sends borrower-facing collection communications. A buyer that subservices through a licensed third-party servicer avoids most state licensing burdens. The fifty-state analysis should run before any binding purchase commitment with qualified counsel.

Does the SAFE Act apply to a note buyer?

The SAFE Act requires licensed loan originators for any individual who “offers or negotiates” terms of a residential mortgage loan for compensation. A pure-passive note buyer is outside the SAFE Act. A buyer that subsequently modifies an owner-occupied consumer loan — adjusting rate, term, or principal — can trigger SAFE Act licensing depending on state and federal interpretation. Confirm with counsel before any post-acquisition modification.

What documents transfer with the note?

The original promissory note (delivered with an allonge or endorsed in blank), the recorded assignment of mortgage or deed of trust, the title policy, the complete payment history, the escrow ledger, modification documents, the borrower’s original signing package, current insurance declarations, and the servicer’s communication log. UCC Article 3 governs note negotiation; Article 9 governs the security interest perfection.

Who pays for recording the assignment?

The purchase agreement allocates this expense — in most transactions to the buyer as part of post-closing perfection cost. Recording fees vary by county and run from twenty to several hundred dollars per recorded instrument. The seller should provide a fully executed assignment ready for the buyer to record; the buyer records and pays. Failure to record promptly creates priority risk against later-recorded liens.

What representations and warranties does the seller make?

Standard reps and warranties cover: title to the note (seller owns and can convey), no defaults or material breaches by the borrower as of the closing date that the seller has not disclosed, accuracy of the payment history, no undisclosed litigation, no undisclosed modifications, compliance with applicable law at origination, and full delivery of the loan file. Survival periods range from three to six months on general reps and longer on title and authority reps.

What due diligence does the buyer perform on a private note?

Document review (note, mortgage, title, payment history); title commitment update; property valuation (BPO or appraisal); borrower credit re-pull; tax and lien search; servicer file review; modification documentation review; and a regulatory compliance review for owner-occupied consumer loans. The reviewer prices each finding into the bid. A clean file delivers a tight bid; a file with gaps delivers a wide bid or a passed trade.

What is the §1024.38(c) record-retention rule?

Regulation X §1024.38(c) requires the servicer to retain records that document actions taken with respect to a borrower’s mortgage loan account for one year after the loan is discharged or transferred. Institutional buyers and most state regulators expect retention for the longer of one year or the applicable state record-retention period, with five to seven years standard for portfolio buyers and state examiners.

Related Topics

• Selling Notes: Pricing and Yield for Private Lenders and Sellers
• Borrower Workout Paths That Preserve Value
• How to Build a Workout File That Holds Up in a Loss-Mit Review
• Usury and State-Level Rules: A Private Lender’s Compliance Guide
• How to Build a Defensible Business-Purpose File
• Private Lender Usury Compliance: Ten Questions Answered