A Practical Guide to Protecting Your Promissory Note Investment

Writing a check to invest in a promissory note begins the investing process that will provide you with future income and possibly capital gains. After your check is cashed, numerous administrative functions are necessary, on an on-going basis, to protect your investment and maximize its profitability. The administrative functions are called “Loan Servicing”.

Unfortunately, the Loan Servicing function is little understood by many and neglected by most. This neglect causes a discount and devaluation of your investment. Let’s learn how to increase your promissory note investing success and protect the investment through intelligent Loan Servicing.

Definition of ‘Loan Servicing’
Promissory note loan servicing provides administrative services for the loan from the time the proceeds are dispersed until the loan is paid off. Loan Servicing includes: sending monthly payment statements, collecting monthly payments, maintaining records of payments and balances, collecting and paying taxes and insurance, managing escrow and impound funds accounts, remitting funds to the note holder, and following up on payment delinquencies.

Promissory Note Loan Servicing Reports
Monthly and Annual Reports: gross income collected, real income collected, taxable income collected, and repayment of principal collected must be all be tracked separately and reported. Regular payments, partial payments, late payments, late fees, and service fees must be recorded and reported.

Year-end IRS Report Forms: 1096, 1098, 1099-A, and 1099-C must be prepared and remitted.

Loan Servicing Pitfalls and Traps
Realizing the specialization and complexity of the Loan Service function is the first step in dealing with it intelligently. Realizing that neglecting it will discount and devalue your investment is your wake-up call to handle it professionally and carefully. Doing Loan Servicing on scratch paper, or on the back of an envelope, will not satisfy the local State laws, Federal laws, or IRS rules and regulations-a good software Loan Servicing program is needed.

Many uninformed note investors do not realize their exposure to being sued by disgruntled borrowers, State Attorneys General, or by Federal law enforcement agencies. The legal expenses to defend one law suit, or one investigation, can wipe out a year’s investment income or more—even if you win; if you lose, it can be many times more costly.

Tips for Investing Success
The first rule for investing success: understand the details of the investment; understand its risks and rewards; understand your responsibilities and your rights; understand what you will do when an unexpected negative event happens.

The second rule for investing success: understand the details of administering the investment. Who does the Loan Servicing? Is that person or entity experienced and capable? How often will you receive reports on your investment? If you intend to do the Loan Servicing yourself you must realistically and objectively evaluate your own experience, capabilities and computer software facility.
Don’t underestimate the time and effort required; don’t overestimate your own capabilities.

Loan servicing software is an practical comprehensive application developed and from time to time modified, which efficiently assists lenders in managing their loans database. All along the years, loans servicing software applications have enhanced their values due to the competitive demands on the loan market. They have proven their efficiency since frequent human mistakes were little by little removed. Another significant aspect regarding the personnel, is the fact that the amount of workers was slightly reduced, meanwhile the lasting staff have observed major upgrades when they process the information, when they elaborate detailed reports on the financial situation of a certain customer. Numerous lenders have come to reveal the identical opinion – this servicing software application, no matter the provider is a true asset for the whole loan market.

Check the below listed advantages that loan servicing software encompasses:

Competition on the lend market

Creditors throughout the globe had to face new challenges periodically. They have realized the chance that latest technological innovations could bring for the loan market, allowing them an easy way to keep their business update. By using these innovations they have developed this easy to work with, price effective and efficient loan servicing software with the help of several software providers. In addition, numerous software companies show their interest to fulfill the latest demands on the lending market. Therefore competition has developed intensively.

Friendly applications

Today the online approach has reached, someway, every sphere of attention. Loan servicing software program can be accessed these days online, too. Potential customers have easy access and step by step guidance when verifying the offer creditors have elaborated. The online application are able to show potential clients the type of loan they meet the requirements to.

Simplified transactions

Probably the most principal asset that was earned from any loan service software is considered to be “simplification”. Since the amount of clients was growing yearly, there was truly needed a program that would simplify transactions. This problem has been solved by the software providers. Online approach appears to be really valuable on this level too.

Variety on the lending market

Professional loan software applications permit creditors to elaborate statistical reports. Therefore, they are able to identify the loan format which will gain the higher popularity rank. It is extremely essential in this domain to detect the profile and behavior of your potential clients. Considering this, creditors have diversified the category of loans on the loaning market to fit the diversity of clients.

Customization is the following great asset. Loan servicing software programs must be set according to these precise features. Even if, from time to time, customization is linked with increasing costs, entrepreneurs on the loan market see these expenses rather worthy.

A loan servicing software program has a good effect on lenders due to it dynamic and flexibility – clients relationship, database management and management upgrades. Private creditors have anticipated the huge impact software applications might have, that is why they were extremely cooperative to make all loan procedures as simple as possible.