A Primer for Cashflow Professionals
by Sheila White (http://www.cashflowservicing.com)
The goal in this article is to familiarize cashflow professionals with the concept and potential benefits of outsourcing. “Outsourcing” is an impressive-sounding term for task delegation. Outsourcing certain pieces of your process can be a practical and cost-efficient way to increase your productivity and focus your time and energy on new business. Most large companies outsource some piece of their business so they can focus on their core competencies, reduce overhead and make the best use of their resources.
The most common outsource service providers for this industry are the several excellent note processing businesses and escrow companies, but many other options exist. Note processors are experienced in ordering title, clearing clouds on title and dealing with your investment source to comply with all of their requirements. This is probably the most well-known form of outsourcing used by successful cashflow professionals. They have discovered that their time is best used in pursuing new notes, not in ordering title and clearing issues such as divorce or probate, tracking down the location of the original note (the single most important factor in note purchasing) or in perfecting a mobile home title. These are all things that can take hours of your time away from negotiating the purchase of new notes.
Private investors have long relied on their local escrow agent to handle their payment processing. An escrow agent’s role is to act as a disinterested third party in the transaction. The primary problem with this approach is that once a note goes into default, the escrow agent will take no further action and the collection and foreclosure process is placed back in the hands of the note holder or investor. An alternative outsource solution is using a full-spectrum servicing company such as Complete Cashflow Services to handle your accounts. Servicing companies work on behalf of the investor and therefore will pursue the default control process to the extent the investor instructs.
Payment processing and default control aren’t the only benefits you receive from working with a servicing company. Annual IRS tax reporting, real estate tax and insurance monitoring, and customized investor reporting are generally standard services provided. This can free up a great deal of your time and energy by leaving these sometimes confusing reporting and monitoring tasks to specialists.
Not only are there specific requirements for IRS reporting (see http://www.irs.gov), but there are federal laws to observe, such as the Real Estate Settlement Procedures Act (RESPA) and the Fair Debt Collection Practices Act (FDCPA). These laws control the actions an investor may take against consumers. Many think that RESPA applies only to the initial sale of real estate, which is incorrect; it also controls things such as the transfer of servicing of a note and the administration of customer impound accounts. The FDCPA controls many facets of consumer debt collection practices. Two great links on the internet for learning more about these laws are: For RESPA see http://www.hud.gov. For FDCPA see http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre27.pdf to learn more. In addition to federal regulation, there are often state-specific statutes of which the private investor/broker should be aware.
Servicing companies are generally experts in dealing with the issues related to these laws and many others. Outsourcing your servicing needs eliminates much time and effort on your part, while mitigating a good deal of the risk involved in servicing. A good servicer will also let you, the investor, determine the appropriate amount of your involvement in the process. Many investors take a hands-off approach, but a servicer should be open and accepting of an investor’s desire to participate actively in servicing decisions.