What is a Loan Servicer?
A Houston, Texas loan servicer handles the day-to-day tasks of managing a loan. A loan servicer typically processes loan payments, responds to borrower inquiries, keeps track of principal and interest paid, manages the escrow account, and may initiate collection proceedings, including foreclosure, if the borrower defaults.
There are many benefits for using a servicer for sellers. Since in these cases the seller is the lender, you can use these terms interchangeably.
Top 5 Reasons Why Sellers Use Loan Servicers In Houston, Texas
Accounting of a loan can be a monstrous task if you are unfamiliar with the process. Collecting monthly payments, sending monthly statements, disbursing funds to appropriate parties, and providing online lender account access are just part of the responsibilities of the loan servicer.
Since erroneous servicing is a legitimate legal defense for borrowers facing foreclosure, Sellers should take advantage of using a loan servicer. Using a loan servicer saves time, energy, and reduces liability for sellers. Imagine if you were a seller trying to foreclose on a borrower and you didn’t have your accounting in order. How you can you foreclose if you don’t even know how much the borrower is behind?
What if a borrower makes additional payments or late payments? Is a seller who is gonna self service their own loan sophisticated enough to calculate the correct principal or payoff amount? Do you have the knowledge needed to amortize a loan. Do you have the software needed to make proper calculations to account for a loan?
Houston, Texas loan servicers can make the accounting of a loan as simple as waiting for your monthly check. How hard is that? Don’t take on more than you can chew as a seller
The most important component of an owner financing transaction for a seller is the buyer’s timely payment. If it is a wrap around mortgage, the seller is probably counting on the buyer’s payment to make the their mortgage payment. If it is a traditional owner finance transaction a timely payment is a consistent return.
Either way having the loan servicer report to the credit bureaus is a great tool to have to increase the timeliness of the buyer’s mortgage payment. Having a record of the buyer’s payments makes the transaction seem more like traditional third party financing transaction and gives the buyer peace of mind. Having the threat of negative reporting of buyer’s payments also gives the feeling of traditional third party financing transactions and encourages the buyers to make timely payments. This is an advantage for Sellers.
How often have you pushed something to the backburner on our to do list because you are unsure or have never done something before? I am guilty as charged and so are many other Houston, Texas sellers who conduct owner financing transactions for the first time.
Escrow is a big liability for sellers conducting owner financing transactions. Do you as a seller want to be responsible for making the borrowers tax and insurance payments on a yearly basis? Even further, do you want to have to calculate how much the borrower paid toward their escrow on a monthly basis? This is not a fun process and can take a substantial amount of time.
This is where the servicer comes in really handy. They make sure the escrow is properly accounted for, make tax and insurance payments when required on the borrower’s behalf, and work with existing lien holders on wrap around mortgages to help reduce the chances of the due on sale clause being called. This is a big benefit to the Seller. The less work the better!
There is nothing more annoying than getting a call from an annoying and harassing collector. About the only thing worse, is having to be the collector. It can be time consuming to have to make calls and send letters for collection purposes to borrowers. Why should you take time out of your schedule to remind a borrower to do something they should already be doing?
Let a Houston, Texas loan servicer handle these tasks for you. This is more of an advantage than it seems. You’ll really appreciate this service once you have to actually act as the collector.
Ok, I stand corrected. I just thought of something even more annoying than getting calls from the collector or being the collector. Yes that’s right…TAXES! I have never met anyone that jumps for joy when they find out their tax bill. We have all heard the saying “There are two things guaranteed in life. You will die and pay taxes”. Yes that is true for most of us but that doesn’t mean we should have to stress ourselves out filling out tax forms. It’s bad enough we have to pay them.
As a lender, you are responsible for reporting interest earned from the mortgage and interest paid by the borrower to the IRS. The 1098 is completed and given to the borrower so that they can deduct their interest paid on the mortgage for the year. The 1099 is completed documenting the interest the lender earns on the mortgage. Guess who is the lucky one who gets to prepare these documents? Yup, you guessed it….the lender. Unless you are a tax pro this is not something I would suggest doing yourself. The Houston, Texas loan servicer takes care of these responsibilities so you as the lender do not have to. Why reinvent the wheel? Let the professionals who know or are authorized take care of the tasks you don’t know how or don’t want to do.
As you can see there are many benefits to using a loan servicer as a seller/lender. If you have additional questions regarding responsibilities of a loan servicer or clarification on the topics discussed in this blog, be sure to speak with a competent Houston, Texas real estate attorney at Guerra | Days Law Group. Call one of our professionals today so they can help guide you through your next transaction!