I know that many real estate note investors wonder if it is worth paying the monthly fee to use a servicer. After all, if we could do it ourselves, we would keep more money in our pockets and improve our ROI.

Let’s take a look at what loan servicers do and see how much you would like to assume yourself.

First, it is the simple collection of principal and interest payments. One advantage of having a servicer receive payments is that it forces the borrower to deal with the servicer instead of you. With a small number of notes, you may be willing to contact the borrower who fell behind. If you’ve owned rental properties, you understand how long that can take. As your portfolio grows, this can turn into another part-time job for you.

Unlike speaking with a tenant, there is specific language that you must use when speaking with a borrower. Federal regulations are pretty exact in script and must inform the borrower that you are a debt collector and are trying to collect a debt. This also applies if you send a notice by post or email.

Also, since each state has its own regulations that deal with foreclosure deadlines, you need to know how many days they have to be late before you can contact them. Is it three days? Ten? Make no mistake or you may get a nasty call from an attorney.

Another federal regulation that you must follow is informing the borrower that the service of their promissory note has been transferred to you. You need a lot of information about the loan and the borrower to complete the letter correctly. The former servicer will also have to send a similar letter to the borrower stating that they will no longer collect payments. There is a specific timeline that must be adhered to when sending these greeting and farewell letters.

In addition to principal and interest payments, many promissory notes have a section that outlines the guarantee payments for taxes and sometimes insurance. If the borrower sends you these payments, you are responsible for putting them in a separate account and then paying property taxes to the county and policy payments to the insurer. You definitely don’t want those to fall behind. And if the escrow accounts receive any interest, does the money go to the borrower or can they keep it? It’s time for more due diligence.

Another service you should perform if you are the administrator is submitting tax forms at the end of the year. You will need to send each borrower a 1099-INT showing how much interest you paid and you will need to file a 1098 to show how much interest you received.

One last oversight you may want to give up is making sure your hazard insurance payments have been paid and your taxes are up to date. A trustee can see them for you and set you up with forced place insurance to cover you if your borrower has let your policy lapse. The manager will add the price of your insurance to your bill, so you should eventually get that money back.

In conclusion, you can definitely take on all the tasks that an administrator will cover for you if you are willing to spend time with it and learn everything you need to do to comply with all the regulations. Personally, I will gladly pay a nominal fee to an administrator.