The questions below recur at the boarding stage of a new seller-carry note. The answers run against the UCC Article 3 framework on negotiable instruments, the §1024 RESPA servicing framework, the §6050H IRS reporting framework, and the National Flood Insurance Program framework.

Where does the original wet-ink note belong?

The original wet-ink promissory note belongs in a fireproof safe at the holder’s premises or in a third-party document-custodian vault. The storage runs the wet-ink original on a documented chain-of-custody record from the closing attorney to the holder or the custodian. The original runs the holder’s status under UCC Article 3 as the holder of the negotiable instrument. A loss runs the holder into the UCC §3-309 lost-note affidavit cure on a foreclosure event.

What is the §1024.33 servicing-transfer notice?

The §1024.33 notice runs on a residential consumer-purpose note where the holder transitions servicing from one party to another — at boarding, on a switch between servicers, or on the sale of the note to a new holder. The notice runs the transfer date, the new servicer’s name and contact information, the new payment address, the effective date on the new servicer’s billing, the statutory grace period on misdirected payments, and the borrower’s error-resolution rights. The notice runs to the borrower between 15 days before transfer and 30 days after transfer.

Does a seller-carry note need a lender’s title policy?

A seller-carry holder benefits from a lender’s title policy at closing on the same dimensions that an institutional lender benefits — protection on prior liens, prior judgments, prior unrecorded easements, and boundary errors. The premium runs once at closing and the policy runs for the life of the note. A seller-carry holder who waives the policy at closing absorbs the title-defect risk on the lien on the same terms an unsecured lender absorbs the risk on the borrower’s personal credit.

What is the §6050H reporting requirement?

The §6050H requirement runs the Form 1098 reporting on mortgage interest received from an individual in the course of a trade or business at $600 or more per year. The reporting runs the borrower’s name, the borrower’s taxpayer identification number, the property address, and the mortgage interest received in the year. The holder furnishes the Form 1098 to the borrower by January 31 and files the form with the IRS by the standard information-return deadline. A missed filing runs the §6721 and §6722 penalty exposure on the year.

When does the National Flood Insurance Program apply?

The National Flood Insurance Program framework applies on a federally-related mortgage loan secured by a property in a flood hazard zone identified on the Federal Emergency Management Agency flood maps. The holder runs the flood certification on the property at boarding to identify the zone status. A property inside a flood hazard zone runs the flood insurance requirement on the property at the holder’s mortgagee endorsement. A property outside a flood hazard zone runs the flood certification as the documentation that the flood-insurance analysis ran at no requirement.

How does the recorded assignment chain work?

The recorded assignment chain runs the record of every transfer of the note from origination to the current holder. Each assignment runs an instrument recorded at the county recorder against the property identification. The chain runs the title company’s analysis on the holder’s standing to assign the note or to foreclose against the property. A seller-carry holder who acquired the note from a prior holder records every assignment in the holder’s acquisition chain at boarding rather than at the next transaction.

What is the §1024.17 escrow analysis?

The §1024.17 escrow analysis runs the projection on the monthly impound payment against the annual tax and insurance disbursements on a residential consumer-purpose note. The analysis runs the projected tax bill at the county assessor’s current value and the projected hazard premium at the carrier’s current rate. The cushion runs at the holder’s discretion up to one-sixth of the annual disbursements. The annual reconciliation runs the actual disbursements against the projected and produces the surplus refund or the shortage allocation against the borrower.

What is the mortgagee clause on hazard insurance?

The mortgagee clause runs the holder’s designation on the hazard insurance policy as the loss-payee on a covered casualty. The clause runs the holder’s right to the insurance proceeds on the restoration of the property or the reduction of the unpaid principal balance against the borrower’s default. The holder runs the mortgagee endorsement on the policy at boarding and tracks the renewal against the annual renewal date.

What does the Closing Disclosure run on the file?

The Closing Disclosure (on residential consumer-purpose notes after October 2015) or the HUD-1 (on commercial-purpose notes or pre-October 2015 residential notes) runs the documented record on the closing terms — the loan amount, the interest rate, the closing costs, the seller’s proceeds, the borrower’s funds at closing, and the loan terms. The document runs the holder’s record on the original closing transaction against any subsequent dispute on the closing terms or the loan structure.

Related Topics

This article is educational and does not constitute legal advice. A new seller-carry note involves federal IRS reporting requirements under 26 U.S.C. §6050H; federal Regulation X under the Real Estate Settlement Procedures Act on residential consumer-purpose notes; federal Regulation Z under the Truth in Lending Act; the National Flood Insurance Program framework on properties in Special Flood Hazard Areas; the Uniform Commercial Code Article 3 framework on negotiable instruments; and state recordation and licensing rules that vary by jurisdiction. Consult qualified legal counsel on the document requirements that apply to any specific seller-carry transaction.

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