The Importance Of Recording Documents

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August 24, 2020

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chrisseveney

Nothing is as safe as putting things on paper. Especially in the notes business, you need to make sure that all your documents are complete and in order, or else, you might just run into some tough situations. Helping you cross your t’s and dot your i’s, Chris Seveney talks about the value of recording documents and how you can go about doing that well. He lays down the important pieces of documents you need to have down and shares some scenarios and even a case study that could help you understand why it matters to take on this task seriously before it is too late.

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The Importance Of Recording Documents

We try and continue to educate individuals who have been landlords from working to get rid of the Terrible Ts, which are Tenants, Toilets and Termites, and change your lifestyle to be Terrific Ts, which I like to call Time, Travel and Teeing Off. We’ve seen a lot of people starting to make that shift from the landlords to what we call lienlord. We’re going to provide more content and education for you. We’re going to talk about why you record documents and how to record documents and the importance of that information. Let’s get to it. Before we get into the full segment, I do want to talk about some major announcements we’ve got going on right now. We’ve had a lot of people asking for more content and wanting to learn a little bit more about some of these things.

We are in the process of rebranding our business and the website, and we’ve got some pretty cool stuff that’s going to be rolling out that is going to be very helpful for people to give them a lot of options and strategies in the note investing space. One of the things that are going to be a part of that is I’m going to bring back to weekly open mic nights. I want to ask you, the audience, who want to participate. I’ll put a poll down in the survey, what nights do you think that works for you? I’m either thinking of Sundays at 7:00 because usually on Sunday evenings, people have a little bit more free time and so forth to do some things. I want to try and cater also to people on the West Coast and the East Coast.

I was considering doing it during the week at that time, but I know there are a lot of people out in the West Coast that won’t be able to participate. Stay on the lookout for that. As I mentioned in the past in the show, I’m going to provide a lot more content to have a lot more guests. I’m also going to be doing something called seven-minute interviews. We’re going to bring on other note investors and basically, it’s going to be a quick-fire round of they got seven minutes. We’re going to talk about seven questions and it’s going to be helpful to you to hear some of these other opinions from other investors and not from me or other people out in the space. This is going to be from people with a lot of experience, people with who are getting new and share some of those lessons learned from the show perspective.

We’re going to continue to record going to break it down a little bit differently. What happened is going to be me talking a little bit more about my trials and tribulations and we’re going to of course have that main segment and we’re of course still going to have that Notes and Bolts component too. Also, I’m going to start adding some of these interviews to the show. I hope everybody’s excited about that. I know I am. For readers who are looking to continue to advance your skills, get some tidbits and feedback on things, this is where we hope to provide you with that added benefit from there. With that, let’s roll into this major topic, which is again, the importance of recording documents and why to record and what do we record?

Trials And Tribulations

There’s a lot that goes into this and so forth, which I already forgot. Let’s step back and do my trials and tribulations before we get into that. The positive has been we had a property that was a very difficult property. It’s a property where we had that $10,000 water bill. Knock on wood, I’ve got a cash buyer on that asset. I had this one for several years. The JV partner has been very patient. I’m also now turned into being an experienced note investor during this time. Truth be told, we’re joking where the realtor and the attorney are the ones who made the money on this deal. I said, “His return is going to be between probably a Dunkin Donuts and a Starbucks.”

Recording Documents: The deeds show who has or should have ownership of the property because reality is anyone can sign it quickly and do you over.

That happens. It’s all about how you present it, how you go about it in the communication during this entire time, telling me what was going on. At one point in time, we thought we could make a good amount of money on this, but the property was left in despair, and some people had talked about knocking it down. We’re happy to get that off our books. Could we have gone and renovated it and possibly made a few bucks and so forth? Maybe, but the time and effort that would take us away from doing our main focus or main job, which is note investing, that’s what you got to make sure you don’t do are chase that shiny object. That’s the positive from what’s happened. Some of the downside stuff I’ve been dealing with is we had a property that we took back and trying to sell and there were some pass-through taxes on it. Because it’s in Alabama, it got put into like the tax sale lien department.

They leave it open for somebody to bid on it for a period of time. We’re delaying our closing until that process stops. I told the title agent to have the buyer upfront with the cash buy the tax liens so we can figure out the closing. They didn’t want to do that. I don’t know why, but we’re going to have to wait it out. If somebody does buy the lien, I got to pay it off so whether or not they buy it, it doesn’t matter. The way I’m closing, we should have ways of putting some money back into our pockets that we can get back out into that area. Something to look at and to be careful of is on taxes sometimes and this was one we knew were delinquent. We thought we had a little more time and it was going to a lien, not a sale. It wasn’t the end of the world, but now it’s a mistake and it’s costing us a little bit.

Recording Documents

We’ve covered our trials and tribulations. Now, let’s talk about the meat of this episode, which is recording documents. What, why and how, those are the three main components of documents. Let’s start with a high level of why. When we talk about recording documents, we’re talking about executing a document, going to the county and being put in the public record. The reason you want to do that is to prove some type of claim against that property. There are deeds of trust and mortgages, which lenders want to get recorded because you want to show you have a lien position.

There are deeds, which of course you want to get recorded that shows who has ownership of the property or should because reality is anyone can sign it quickly and do you over and anyone else, but we’re not going to go there. Assignments are probably the biggest component of note investors that you need to make sure you get recorded. If you’re investing in notes, strictly notes, not contract for deeds, that assignment, you want to make sure that it gets recorded. On contract for deeds, I’ll briefly touch base about them. You need to get the deed recorded along with potentially the assignment land contract, depending upon whether the land contract was or was not recorded.

There was a Facebook post by a gentleman, Matt Kelly, which was an excellent post. It was something I dealt with about that came to bite me a little bit but can bite you hard. Another document you’ve got to make sure that’s recorded potentially is the power of attorney. If companies have a power of attorney signing off on documents, you need to make sure that they have that power of attorney recorded somewhere. Typically, it needs to be recorded in that county. I know in Ohio that has to be the case. Those are the gamut. Assignments and power of attorneys. If you’re originating something, a deed of trust or mortgage. The note doesn’t get recorded.

Remember, the note is an IOU between you and the borrower, which we covered in that last episode. The deed of trust is that security, the ball and chain that ties that together. The deed also, if it’s a contract for deed. Those are the items that get recorded. The question’s going to be how do you do that? This is always a challenge. When you buy a property there’s a title company and they handle it. They take care of the transaction for you. Most of these instances with notes, there’s no title company involved. It’s you and the seller. They send you the documents after post-closing. There are some companies out there that do this and it may fluctuate in regards to price and also quality and time. Time is going to be very important in trying to get these recorded. I’ll share my Notes and Bolts why that is important and why that is the case.

A few companies that are out there, a company called KC Wilson, they do a collateral review. They can assist with recording documents. I started using a company early on to do some of this. I’ll be honest, I found them to be extremely expensive. If there was like an exception, like something missing, they were charging $100 for that, which to me is ludicrous. If you’re missing assignments, they’ll go, “$100,” and that’s not to record it. That’s for them to put in a tracking system. I don’t know if I was new and getting scammed by them and not paying attention to what they charge, but I walked away from them. Another is MetaSource, formerly Orion. They typically will take on people with a little bigger portfolio. They usually need 20 to 30 notes with them in order to get their services.

Another vendor that caters to a lot of investors that are on the smaller scale is KDK Services, Erika out of South Carolina. I believe she used to work for either Harbor or NAM, a large firm and now has gone off on her own. She does a great job. I send some stuff to her now as well. There’s also eRecording. You don’t need any of these people to do it. As long as the paperwork’s correct, you can go online, upload it, eRecord it. The most common website is Simplifile, Simplifile.com. I know there’s another one out there called CSC eRecording. I have memberships with both and they basically cover the same. There are a little bit of differences which I can cover in another episode between the two, but I will find that $150, $250 fee plus $5 for every recording to use these online ones.

I find it’s worth it because you control it and the time. You can upload it and submit it. Honestly, I’m going to go online and upload a bunch from an acquisition I got. I’ll upload the assignments and eRecord them. I don’t know the percentage, but there’s probably at least half the United States and most major areas that you can do that. There are still areas where you have to also use a third party, but my recommendation is if you can eRecord, that’s definitely what I would recommend from that perspective.

The Importance Of Recording Documents

We talk about how, who and why. We briefly touched base on the reasoning of showing, but why is that important? Why do I care that I show that I have a lien on that property, a first position mortgage on that property? What’s the point there? There are many reasons. The first is in every state, property tax takes jurisdiction. If you don’t have a loan being escrowed or even if you do, taxes get missed and there are delinquencies and potentially it’s going to go to a sale, they notify all lien holders of record. If you, for example, bought a note and had the assignment and it didn’t get recorded, just stuck it in a file somewhere. It was a nonperforming asset, trust me, this happens a lot.

In closing, we should have ways again to put some money back into our pockets that we can get back out into that area. Share on X

People forget to record or send it in and it was rejected and they take three months to get it back. This happens a lot because they get rejected for crazy stuff. I’ve seen stuff that I’ve submitted one after the other, the same exact document with different signatures, one approves, one rejected. It blows your mind. I want to mention that because if they notify people who have an interest, whoever that was assigned to, and you haven’t got your assignment recorded, guess what? It’s going to the old holder and what are they going to do? “I don’t own this anymore.” They’ll throw it in the trash because they don’t know if you own it. They don’t know if you sold it. I’d say 99% of companies will not send that notification to you. If they don’t, shame on you because you didn’t get your document recorded. You could have a property and lost at a tax sale because of that process. That’s the first.

What else could happen? Let’s say you originated a mortgage with somebody on a property. You did seller financing and you recorded according to the deed, but took your time because on the mortgage because there’s another issue. That person goes the next day, borrows $50,000 from his buddy, writes it up, slaps a lien and records it on there. It’s going to be a problem. In most states, it’s what gets recorded first. It doesn’t matter the date it’s signed. Now, you could sue and so forth, but again, you’re spending money. Make sure you’re recording a deed, definitely, that’s one. Another is along with taxes, liens and judgments on properties. Sometimes on properties, somebody may have a lien or judgment, and then the lender will record that judgment in the county and then file for foreclosure. You’re in the first position, but you’re not on the record title. You may not even know what’s going on. You may be spending money on legal as and not even know it, which typically your attorney would want to see the recorded assignment. Why that is important?

It’s another avenue of nobody knows. People can be working in two different paths, a second or another lien. It could be foreclosing. If you didn’t record your assignment, they don’t know who you are. They’re not guessing. When they run their title report, they’re looking at who’s on the title, not you. They’re notifying the other person. In the same token, you could be starting legal and spend the money too. That’s very important as well. It’s the same thing with an HOA. An HOA in these communities can put liens on the property. They notify the mortgage holders as well. It’s very important to get these documents recorded.

I’ll be the first to say, I’ve had some that have taken a long time. I’ve had some that we’re doing Simplifile and then it’ll get rejected. I wait for another month and get it recorded. It’s something you’ve got to make sure it should be one of your priority focuses and it’s paperwork. It’s a pain in you know what. Nobody likes to do paperwork. Let’s be honest, especially in this world. We want to buy, we’re reviewing tapes and we’re making workouts. That’s what we enjoy doing because again, we’re making money on that. Recording a document, it’s like doing your books on accounting. I enjoy doing my books, but this is one of those tasks that nobody likes to do. Sometimes you can hire somebody and then it’s like, “It’s cost me a lot of money to do it so I’ll do the Simplifile or eRecording,” but you need to make sure. The reason why is this reduces so much risk.

Let me share some case studies that I’ve had. I bought as my pool of assets and one of those assets was in California and we sent the contract for deed and I sent it to MetaSource back in November. The deed did not get recorded until May. During that time, I was waiting and stuff and COVID was happening. Every 3 or 4 months, I send somebody by the property. In November, the property was there and stuff and it looked like someone’s living there. Come back basically right around when the deed got recorded, I send somebody by. Thankfully, I was in this one for $1,500 or $2,000. During that time, the house got vandalized and some stuff happened. The city came in and put out a bid and knocked it down. They notified all the lien holders or the owners. I didn’t get notified because my collateral review company couldn’t get their crap together and took too long. I definitely let them know and they go, “We recorded 300 deeds. This is the first one.” It’s like, “I don’t care if it’s the first one. Why did it take so long?”

This is my mentality of how I operate. It’s great that happened in a sense of you f-ed up, but stop making excuses. How are you going to avoid doing this again in the future? What are your processes and your systems that track this stuff because it’s not acceptable? How this is being done is not acceptable. I’ve noticed a lot of these companies have gotten much worse. I think they’ve downsized. They got newer people in and it’s been very challenging. I know other investors who I work with and speak with frequently had some of the same problems. That’s why we’ve shifted to go talk to other individuals and work with others. That’s one. Another was the county basically misindexed an assignment that I had on a property.

Recording Documents: Remember, the note is just an IOU between you and the borrower. The deed of trust is that security.

The reason was there are two property addresses, but we had the right pin number. They put it in the other one when it came up for a tax lien and it went out. We were never notified. It was coming up for tax sale. I called up scrambling and I said, “Why wasn’t I notified?” They looked it up and like, “You’re not on record.” I’m like, “I am.” They realized it was misindexed. They pulled it from the sale because it was an error on their part and basically waived the fees. I said, “I’ll pay the taxes, but I’m not paying the fees.” They waived the fees and everything and got that resolved as well. It was some chaotic moments there on some of those things as well.

Another interesting case study I have is on a contract for deed, I had title to the property. The borrower on the contract for deed, which is a whole other case study, signed somebody else up for a contract for deed on the property. That person defaulted. He got some scumbag attorney to foreclose on that guy when he wasn’t even the proper ownership. The county stepped in or a judge issued him the foreclosure initiative in the deed. I get a letter in the mail saying, “There’s a discrepancy,” or something’s going on here. At the same time, we realized this when I was looking to sell the asset, and the person who ran the title report said, “You’re not on here. The borrower’s name is on title.” We dig through this and find this out. This was all happening around the same time.

I pretty much had to sue the guy, which his attorney would not respond. I wonder why. I told him, “You need to get a new attorney because you’re racking up legal fees on this thing right now. You’re going to keep paying and you’ve got good equity in this property. It’s $1,000 almost every time I got to do something and we’ve already spent $2,000. You can keep paying.” First of all, you’re going to lose the house because it’s forfeiture. If you want to keep the house, this is getting tagged on to the bill. Finally, he realized and spoke to another attorney and the other attorney told him, “Whoever you hired on here, don’t ever use this person again.”

If you ever work with attorneys, the first things they ask before you send demands and stuff is, “Prove to me that you own this.” This person never provided any proof. He couldn’t have because he didn’t own the property that he was the person on the title in that sense. These are some of the things that can happen and go wrong when documents aren’t recorded. It’s definitely something that you want to focus on. What are some of the tips that I’ll provide to share with you in regards to trying to work this process?

Tips On How To Record Your Documents

One is if you’re using a third party, stay on top of them. I would say every two weeks. Every week is too fast honestly, but every two weeks, just check in. Check in and say, “I’m curious if you’ve heard anything.” Also start to understand how long it takes. In Lake County, Indiana, it takes a very long time. Other counties might be a little quicker for documents that are getting sent out. If you’re sending them out, set the expectations, get an understanding, and make sure you follow up. I put in my email little ticklers basically a follow up every two weeks when I get stuff being recorded that is out the door.

Second, spend the money and do any file system with Simplifile or CSC or another system. I’m not getting paid by any of them to say their names. Those are the ones I use, but I definitely recommend doing that. If you’ve got stuff comes in the door, I highly recommend you scan it. You upload it and spend an hour a week or whatever it is making sure that you stay on top of it because it is so important to make sure you’ve got those documents in line. The best time to do that honestly is when the loan’s being boarded because you can’t do the workouts. Nothing’s being done. It’s being transferred. The seller sends you those documents, which should be within a few weeks. The moment you get them, stick them in the scanner, upload them and put them in Simplifile, submit them and then make sure they’re right. Sometimes they’re wrong or the seller misses something. It’s much easier to go back to that seller a week after you’ve got it than it is four months later because they’re going to be much more reactive. That’s a little Note and Bolt there.

The third, which plays into a little bit of when you are buying assets, and it should be upfront, push to get those documents from the seller, “When am I getting them?” A lot of times, they’ll send the collateral before they’ll send those documents and you get two packages but try and push. If it’s a seller you’ve worked with for a while, they’re usually very good. Even if it’s just, “Can I get an electronic copy? I’m going to upload it. Send it in and I’ll wait for the original.” I’m curious also, what are some of the things you guys find to assist your systems and getting stuff recorded? I’d love to hear what some of these things are. Put them on the YouTube page or the Notes and Bolts group. I’d appreciate what it is that you guys find as well. With that, we’re now going to wrap up this episode and go over to the Notes and Bolts side.

Notes And Bolts

In this episode of the segment of Notes and Bolts, I want to talk to something that most people don’t realize. This was one that was like, “Ooh,” for me and it’s on land contracts. This is in the State of Iowa. I learned this from Allied Servicing. This is Iowa legal doc 558.46, “Every real estate installment sales contract, the transferring and interest in residential property shall be recorded by the seller with the county record in the county where the real estate is situated not later than 90 days from the date the contract was signed by the contract seller and contract purchaser.” What does that say? You’ve got 90 days when you sign a land contract to get that recorded.

Stay on top of your documents. Make sure you've got those in line. Share on X

The second line says, “Failure to record a real estate contract required to be recorded by the section by a contract seller within the specified time limit is punishable by a fine not to exceed $100 per day for each violation. The county recorder shall record a real estate contract presented for recording, even though not presented within 90 days of the signing of the contract. The recorder shall forward to the county attorney a copy of the contract recorded more than 90 days from the date the contract was signed by the seller and purchaser. The county attorney shall initiate action in the district to enforce the provisions of this section. Fines collected pursuant to subsection shall be deposited in the general fund of the county.”

“If you record a land contract in Iowa after 90 days, it gets sent to the attorney and they’re going to come back after you.” It gets better. “Failure to timely record shall not validate an otherwise valid real estate contract.” You’re probably thinking right now, “Big deal, I will never record it. Let the borrower defaults.” Item three says, “However, a contract seller is prohibited from initiating forfeiture proceedings on the basis of a failure to comply with the terms of the contract if the contract has not been recorded.” How many people out there have Iowa land contracts right now? I hope you don’t have non-performing ones. Fortunately for me, I’ve had several in Iowa. I had one that was not recorded. What we did was I converted the borrower to a note so I didn’t have to record the land contract. We canceled it and issued the person on the new mortgage notes. I’ve heard typically in these instances, they charge $5 to $10 a day, but if you’ve got one that was 3 or 4 years ago, 1,000 days, think of a penalty you could be charged.

There was one on Paperstac that I was looking at. That was the first question I asked the borrower or the seller, “Is this recorded?” They’re like, “Yes.” I’m like, “I’m interested.” That’s definitely something that a lot of people probably aren’t aware of in the states. My attorneys didn’t tell me this and I’ve had attorneys review collateral. I find it interesting. Maybe they’re not collecting on it, but the way this reads is when it gets recorded, if it’s more than 90 days, we’re going to send it to the attorney’s office. Has anyone ever been burned by this? Are there other states like this that people have had issues with land contracts? I know Maryland, which is another topic for another day, has some real quirky laws in regards to land contracts, but I’m curious also to get input from you.

What are some of the real strange quirky laws you’ve seen or you’ve heard about that can impact not impact the note, but impact fines and fees for not doing something? If you want to share that with everyone, I also want to say thank you for joining us on this episode. As always, if you have comments, please leave them and make sure to subscribe to us on YouTube and join the Facebook group, the Notes and Bolts from the Good Deeds Note Investing Podcasts on Facebook. People get a lot of value from that. I want to continue to try and assist you and answer your questions in regards to trying to help you grow your note business. Thanks for joining us.