At our training classes, we drill down deep into the paperwork. This drill down is extremely important to investors now adding real estate notes into their real estate investment business. Experience tells me most are ill prepared for some of the fine points within the note business.
Most real estate investors are guilty of going to a “closing” and just signing documents. They do so without reading or fully understanding the details of what they are signing. I’m sure everyone reading this has been guilty of that at some point, myself included.
A professional note buyer knows the devil is in the details. The contracts ARE the deal for us. That’s why it is so important to understand the wording of the document that makes the deal.
For example, if you are selling a note to someone, there are two simple words that can make the difference between a safe transaction and one that could cause a long-term financial loss. Those words are “without recourse”.
When you endorse a note (sell it) to another investor, you always want to endorse it “without recourse”.
Those two words must be in the agreement, otherwise you are guaranteeing the payments if the borrower doesn’t pay! If you sign the note over “without recourse” you are essentially saying: “I am not guaranteeing the borrower will make the payments nor am I responsible if they don’t”.