You sold your property using owner financing and purchased a Lender's Policy at the time of sale. Later, you want to sell your note to a Note Buyer. So you take your note sale contract to the title company that issued the Lender's Policy, and tell them you want to sell your note and use their services as an escrow agent. All is well, right? WRONG!!!.

Even though the title company that issued the Lender's Policy was eager to take your money to sell your house, when it comes to selling your note, the title company refuses to handle the transaction, stating "We do not do those kind of deals".

What this means, if you are going to sell your note, you will need to find another title company that will handle the note selling transaction. However, the new title company will probably insist you purchase a new policy from them. Now you are double paying for a Lender's Policy. This happens often, and lately, I am seeing it occur even more frequently.

There are a couple of solutions to this problem. The first solution is before choosing a title company to handle the sale of your property and purchasing a Lender's Policy, make sure the title company which is handling the transaction will also handle your note sale in the future. You also want to inquire about the costs involved, which should be nothing more than a date down, approx $150, escrow fees, approx $250 and of course recording fees. The Note Buyer will be preparing all the other documents, so it should not be expensive. If title companies are not willing to help you with all your business needs, I would find a title company that fits your needs. It is that simple.

Since the Lender's Policy "follows the note", be sure to keep your original policy. This opens the door for another solution. You might find an attorney or abstract company that will handle the transaction for only the cost of escrow fees Also, there are a few "investor friendly" title companies that will be happy to handle your transaction for only escrow, date down fees and recording fees.

The another solution is to find another title company that will handle note sale transactions, but will also insist that you purchase a policy from them. Although this route is more costly, sometimes it is the only solution. I am in the process of closing a note sale with this exact scenario.

However, issuing another Lender's Policy presents another issue. Since the title company is insuring the balance of your note, sometimes they will want verification of the balance in the form of an estoppel letter from the payor. Many title companies will not issue a new policy without a payor's estoppel letter. What happens if your payors refuse to cooperate? Remember, the payor is under no obligation to sign anything. In other words, no estoppel letter, no Lender's Policy; No Lender's Policy, No Note Sale. Puts you in a bind if you want to sell your note, doesn't it.

In the April 2010 issue of THE NOTE PROFESSOR NEWSLETTER, I discussed having your payors sign a Document Correction Agreement, where by they would cooperate with correcting any errors or omissions in the note or deed of trust, or be subject to a law suite. Why not add a clause stating your payors WILL COOPERATE in signing and returning any and all documents that apply to establishing the balance or the status of your note. This clause will go a long way to making sure your payors will cooperate in signing documents relating to selling your note, whether the estoppel letter is required by the title company or the Note Buyer.

Summary: Lender Policies are mandatory for Note Buyers. If you purchase a Lender's Policy, make sure your title company will also handle the note sale. If not FIND ANOTHER TITLE COMPANY. Second, be sure to keep your ORIGINAL Lender's Policy in the event you have to use another escrow company to sell your note. Last, but not least, be sure to include in your Document Correction Agreement a clause that states your payors will cooperate in signing and returning estoppel letters to establish the balance and status of your note. These actions will help ensure your note sale will have the least amount of problems.

The Document Correction Agreement and other topics will be discussed in a Comprehensive Notes Workshop that Gaylene Lonergan, a Certified Commercial Real Estate Attorney, and I will be giving in October. Contact Me to make sure you get a personal announcement.

Also CONTACT ME.
if you have a topic you want me to discuss. It is from your feed back that I get my topics. I look forward to hearing from you.

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Here we go again. Myths do die hard. This past week I heard two politicians and one "expert" trying to defend government spending by citing "facts" from the Great Depression. No doubt the talking points have been established to justify a new stimulus package. These "experts" cited how FDRs government spending in the early 1930s caused unemployment to drop from a high of 25% in 1933 to 14% in 1937. Of course, using their "logic", the drop in unemployment in 1937 was attributed to government spending. (TAX PAYER MONEY) They then cited how in 1937 government spending was slightly reduced, which they contend resulted in the depression going deeper and unemployment increasing. If this is all you hear, you would conclude that government spending causes prosperity, and reduction in government spending causes unemployment. You cannot argue "facts"? Right? WRONG!

These "facts" are accurate, but not true. Why are the facts not true; because the defenders of government spending omit other facts, which put the decline of unemployment prior to 1937, and the deepening of the depression after 1937 into proper perspective. What else happened to make unemployment figures decline from 1935 to 1937?

To begin, in 1935 the Supreme Court found FDRs National Recovery Administration unconstitutional. The NRA was the bureaucracy which administered National Industrial Recovery Act of 1933. Without going into a lot of detail, the NIRA gave FDR the power to virtually nationalize industry and form government sanctioned cartels of both industry and labor. The economy was virtually under FDRs thumb. With prices and wages being controlled by FDR, along with harsh barriers to competition, is it any wonder unemployment rose to 25%? When the NIRA was declared unconstitutional, the market was a little better equipped to adjust, and adjust it did. Unemployment dropped to 14%, not as a result of government spending, but rather because many of the government barriers to competition and the market were removed.

Second, in 1935 the Supreme Court found the Agricultural Administration Agency unconstitutional. In a nutshell, the AAA controlled the price and production of agricultural products. To give you an idea of how the AAA contributed to the collapse of the agricultural market, this was the agency that killed livestock and destroyed crops to prop up farm prices. Never mind there were soup lines because people could not afford food, and higher prices for food meant the soup lines would just get longer. It was for "the common good". At the same time the Department of Agriculture issued a bulletin letting the nation know the great problem they faced was not being able to produce enough food to provide people with a subsistence diet. Add to these insane actions the fact that farmers were being paid NOT TO PRODUCE. Is it any wonder when price and production controls were removed, the industry rebounded? The rebounding of the agriculture industry also contributed to the decline of unemployment.

Other FDRs programs were found to be unconstitutional. The repeal of these programs allowed the market to function better within the laws of supply and demand. However, the NRA and AAA were the two "biggies". The decline in the unemployment rate from 1933 to 1937 was actually a result of FDRs government programs being dismantled. Eliminating government programs gave the market more "breathing room" to function properly.

Ahh? But why did unemployment go up in 1937 when government spending was slightly reduced? There were several government interventions which contributed to the economic downturn, but I will hit only the high points. In reaction to the Supreme Court's declaring the NRA unconstitutional, in 1935 the Wagner Act was passed. This legislation set the stage for government to control labor wages, hours and working conditions. Disputes were taken out of the courts and put into the hands of bureaucrats (FDR). This gave labor unions unprecedented powers. If an employer resisted or tried to defend against any labor demand, the resistance was declared "unfair labor". Later it was determined that employers could not resist labor union leaders. With unhampered threats of strikes, plant takeovers and even violence production decreased sharply, and unemployment increased.

Next, FDR decided that industry leaders were "stupid" and "economic royalists". He then started initiating "soak the rich" taxes, the most prevalent was a tax on retained earnings. As a result, capital investment took a nose dive, and unemployment skyrocketed.

Last, but not least from 1936 to 1937 the Federal Reserve, in all its wisdom, doubled the reserve requirements on the nation's banks. It could be argued that this alone could have caused an economic dip. However, when you combine increasing the cost and power of labor, along with "soaking the rich", a decline in economic production and a rise in unemployment were inevitable. A decline in government spending merely made the dip less, rather than being the cause of economic decline.

Were there other factors that caused the economic decline in 1937? Yes, but I do not have space for them here. Suffice it to say when all the facts are presented, government spending was not the cause of unemployment declining from 1935 to 1937, but rather it was the Supreme Court's declaring FDRs programs unconstitutional. This allowed the markets to function more freely.

Likewise, the rise of unemployment and decline in the economy was not a result of a slight decline in government spending, but rather a combination of facts, such as artificial increase in the cost of labor and suffocating taxes on capital. And of course, the Federal Reserve's decreasing the access to capital by doubling the reserve requirement on banks.

Summary: Government spending was not the cause of unemployment declining in 1935 to 1937. Repealing government programs that hampered production resulted in unemployment declining. Likewise, lack of government spending did not result in unemployment rising, but rather an increase in taxes on capital, and labor costs artificially rising, along with the Federal Reserve's doubling the nation's bank reserves.

Henry Morgenthau was FDRs Treasury Secretary and friend. His words in 1939 are a warning for our politicians today. "We have tried spending money. We are spending more than we have ever spent before and it does not work---We have never made good on our promises---I say after eight years of this Administration we have just as much unemployment as when we started---and an enormous debt to boot!" So much for government spending leading to employment and lack of government spending leads to high unemployment.

The next time you hear this spin, and unless I miss my guess, you will hear this more and more, remember Morgenthau's warning; "I say after eight years of this Administration we have just as much unemployment as when we started---and an enormous debt to boot!"

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