A custodial agreement is a three party agreement between Investor Loan Services, Inc. (ILS), a borrower and a third party lender.  The third party lender has made a loan to the borrower which is secured by notes receivable owned by the borrower.   We will refer to the borrower as the “Investor” and to the third party lender as the “Bank”, so as not confuse with the borrowers and lenders under the individual notes that are part of the notes receivable portfolio.

ILS serves two roles under the custodial agreement. The first is as loan servicer, to collect the note payments for the Investor for each individual note in the note receivable portfolio pledged as collateral for the Bank loan. The note payments, less the servicing fees, are disbursed to the Investor’s bank account on a semi-monthly basis.

The second role for ILS in the custodial arrangement is to serve as custodian of the original notes and deeds of trust for the note receivable portfolio.  ILS keeps the original notes and deeds of trust, in a secure area, segregated from its other files.  The custodial files are available for inspection by the Investor and the Bank or its representatives.

ILS will provide the Bank with an initial certification of the notes and deeds of trust held under the custodial agreement.  Thereafter, ILS will provide reports to the Bank on a quarterly basis, certifying the notes in its possession.  The reports will include additional information pertaining to each note, such as current principal balance, monthly payment amount and next due dates.

Our attorney will work with the Bank’s attorney to document the loan subject to the custodial agreement.  Possession of the notes by the custodian perfects the Bank’s interest in the collateral.  ILS has possession of the notes (collateral) on the Bank’s behalf.

The custodial arrangement is easier to manage than the traditional collateral transfers.  Since collateral transfers are hard to keep up with, they tend not to be done timely.  In some instances, after several years of failing to keep up with the collateral transfers and original notes, the Bank has discovered that its collateral position has deteriorated to the point that its loan is under-secured or perhaps unsecured.  With all of the changes and mergers within the banking industry, sometimes the collateral (underlying notes) is lost, which puts both the Bank and the Investor in a precarious situation.

With the custodial agreement, the Bank will no longer be required to hold and manage the portfolio of original notes.  This will be done by ILS and reports are provided to allow the Bank to keep abreast of the loan to value ratios and quantity and quality of its collateral, in accordance with their loan agreement. The process is seamless to the Bank; saves the Bank management and employee time, and allows the bank to know where it stands in reference to their collateral.

The custodial program is a secure process used to help Investors and Banks efficiently manage borrowing relationships and is used for many types of loans.  For example, you may currently have an existing portfolio of notes that you would like to borrow against to take advantage of other investment opportunities, or you may have a piece of property that you intend to subdivide and then sell the individual lots through seller-financed transactions.

A custodial agreement is a three party agreement between Investor Loan Services, Inc. (ILS), a borrower and a third party lender.  The third party lender has made a loan to the borrower which is secured by notes receivable owned by the borrower.   We will refer to the borrower as the “Investor” and to the third party lender as the “Bank”, so as not confuse with the borrowers and lenders under the individual notes that are part of the notes receivable portfolio.

Through a custodial arrangement collateral is easier to manage than the traditional collateral transfers.  Since collateral transfers are hard to keep up with, they tend not to be done timely and often result in the deterioration of the Bank’s collateral position.

Traditionally, the Bank would initially have a master deed of trust on the entire subdivision.  Then as the lots are sold, the Bank would receive a Collateral Transfer of the seller-financed note and deed of trust as its collateral and the Bank would execute a partial release of its master deed of trust as to the lot being sold.  The Investor would deliver the original note and deed of trust, along with the Collateral Transfer to the Bank.  This is a cumbersome process and difficult for most Investors and Banks to manage.

Under the custodial arrangement, the Bank would continue to take a master deed of trust on the entire subdivision.  The Borrower would also execute an Assignment of Income with regard to the income generated from the sale of the lots.  As the lots are sold, the bank would execute a partial release of its master deed of trust, the original note and deed of trust are delivered to ILS as custodian, to hold the documents on behalf of the Bank.  On a quarterly basis, ILS will verify the notes in its possession and provide a certification to the Bank An Assignment of Income is executed and recorded to give notice to others (i.e. title companies) of the Bank’s security interest.  It is a blanket assignment, and in many instances, there is no need to prepare additional assignments for individual sales.

While an Assignment of Income provides notice of the Bank’s security interest, it does not prevent the Investor from managing its portfolio of notes.  Thus, if one of the underlying notes receivable is past due, the Investor can proceed with collection of the note and even foreclosure of the underlying deed of trust.  When the foreclosed property is re-sold, the original note and deed of trust are delivered to ILS as custodian and the new note receivable becomes part of the collateral.

The Bank can establish parameters as part of its loan agreement with the Investor to establish a loan to value ratio and a borrowing base (based on lots in inventory and notes receivable balances).  The Bank can monitor its parameters quarterly using the information in the custodial certification that ILS provides.  If the Investor is over the established borrowing base, the Bank can require that the Investor make a principal payment to reduce the loan balance to meet the established borrowing base.

ILS and its attorney will strive to work with your Bank to provide a program to meet the needs of your particular situation.

Anyone who has serviced their own loans can attest to the stack of paperwork involved in simply originating and closing the note.  The real work for the investor begins with the extensive processing required to maintain the loan or portfolio of notes.

Fortunately for investors, there are great benefits of utilizing a loan servicing company, such as Investor Loan Services, allowing them to focus on other investment opportunities and leave the loan servicing to a team  that is dedicated solely to servicing the loan and managing the borrower relationship.

Loan servicers can provide off-site processing that reduces overhead for the investor. Customer service staff handles the payments and any communication with borrowers regarding their loan, while maintaining customer confidentiality and safeguarding their information. Investor Loan Services uses a proprietary loan servicing platform to manage account information. This ensures that payments are posted accurately and borrower correspondence is documented and responded to in a timely manner. The burden of assigning a loan, collection, and foreclosure can also be handled by the loan servicer. If arranged by the investor, tax and insurance escrow services can be provided as well.

To further discuss the benefits of a loan servicer, please contact Investor Loan Services. Investor Loan Services, Inc. is a comprehensive real estate loan servicing company for individuals, companies, Investors and developers holding real estate notes. Investor Loan Services offers a complete relationship for Investors and their borrowers by providing payment collection, customer service, extensive investor management reports and strict audit controls. Investor Loan Services, Inc. and the Investor design a customized servicing relationship to maximize revenue, streamline cash flow and efficiently manage the Investor/Borrower relationship.

To address more specific needs of investors, a loan servicer can provide compliance assistance to ensure adherence to local, state, and federal laws and regulations. As a measure of the compliance assistance, some loan servicers offer complete IRS annual reporting of Form 1098 “Mortgage Interest Statement”. In the event of an audit, the loan servicing company can provide the borrower or investor a detailed audit trail.

Perhaps the most valuable benefit of using a loan servicer is the extensive professional reporting made available to the investor.  A loan servicer can provide an investor with a delinquency report, trial balance report, annual report, and investor remittance reports for investor controls. These reports can even be customized to suit the needs of the individual investor or loan parameters. An investor can also obtain reports detailing portfolio activity as well as on-demand accounting information. If there are financial partners involved, a loan servicer can ensure that reports are distributed to the partners.

To further discuss the benefits of a loan servicer, please contact Investor Loan Services. Investor Loan Services, Inc. is a comprehensive real estate loan servicing company for individuals, companies, Investors and developers holding real estate notes. Investor Loan Services offers a complete relationship for Investors and their borrowers by providing payment collection, customer service, extensive investor management reports and strict audit controls. Investor Loan Services, Inc. and the Investor design a customized servicing relationship to maximize revenue, streamline cash flow and efficiently manage the Investor/Borrower relationship.

Their troubles may provide opportunities for private investors. Investor Loan services is a company that can services those assets for the private investors providing payment collection, escrow services and consistent cash flow. Learn more about our services by visiting us on line at www.investorloanservices.com or call us at 877-399-1211

The custodial program is a secure process used to help Investors and Banks efficiently manage borrowing relationships and is used for many types of loans.  For example, you may currently have an existing portfolio of notes that you would like to borrow against to take advantage of other investment opportunities, or you may have a piece of property that you intend to subdivide and then sell the individual lots through seller-financed transactions.

A custodial agreement is a three party agreement between Investor Loan Services, Inc. (ILS), a borrower and a third party lender.  The third party lender has made a loan to the borrower which is secured by notes receivable owned by the borrower.   We will refer to the borrower as the “Investor” and to the third party lender as the “Bank”, so as not confuse with the borrowers and lenders under the individual notes that are part of the notes receivable portfolio.

ILS serves two roles under the custodial agreement.   The first is as loan servicer, to collect the note payments for the Investor for each individual note in the note receivable portfolio pledged as collateral for the Bank loan.  The note payments, less the servicing fees, are disbursed to the Investor’s bank account on a semi-monthly basis.

The second role for ILS in the custodial arrangement is to serve as custodian of the original notes and deeds of trust for the note receivable portfolio.  ILS keeps the original notes and deeds of trust, in a secure area, segregated from its other files.  The custodial files are available for inspection by the Investor and the Bank or its representatives.

ILS will provide the Bank with an initial certification of the notes and deeds of trust held under the custodial agreement.  Thereafter, ILS will provide reports to the Bank on a quarterly basis, certifying the notes in its possession.  The reports will include additional information pertaining to each note, such as current principal balance, monthly payment amount and next due dates.

Our attorney will work with the Bank’s attorney to document the loan subject to the custodial agreement.  Possession of the notes by the custodian perfects the Bank’s interest in the collateral.  ILS has possession of the notes (collateral) on the Bank’s behalf.

The custodial arrangement is easier to manage than the traditional collateral transfers.  Since collateral transfers are hard to keep up with, they tend not to be done timely.  In some instances, after several years of failing to keep up with the collateral transfers and original notes, the Bank has discovered that its collateral position has deteriorated to the point that its loan is under-secured or perhaps unsecured.  With all of the changes and mergers within the banking industry, sometimes the collateral (underlying notes) is lost, which puts both the Bank and the Investor in a precarious situation.

With the custodial agreement, the Bank will no longer be required to hold and manage the portfolio of original notes.  This will be done by ILS and reports are provided to allow the Bank to keep abreast of the loan to value ratios and quantity and quality of its collateral, in accordance with their loan agreement. The process is seamless to the Bank; saves the Bank management and employee time, and allows the bank to know where it stands in reference to their collateral.

Mechanics of the Custodial Process

Through a custodial arrangement collateral is easier to manage than the traditional collateral transfers.  Since collateral transfers are hard to keep up with, they tend not to be done timely and often result in the deterioration of the Bank’s collateral position.

Traditionally, the Bank would initially have a master deed of trust on the entire subdivision.  Then as the lots are sold, the Bank would receive a Collateral Transfer of the seller-financed note and deed of trust as its collateral and the Bank would execute a partial release of its master deed of trust as to the lot being sold.  The Investor would deliver the original note and deed of trust, along with the Collateral Transfer to the Bank.  This is a cumbersome process and difficult for most Investors and Banks to manage.

Under the custodial arrangement, the Bank would continue to take a master deed of trust on the entire subdivision.  The Borrower would also execute an Assignment of Income with regard to the income generated from the sale of the lots.  As the lots are sold, the bank would execute a partial release of its master deed of trust, the original note and deed of trust are delivered to ILS as custodian, to hold the documents on behalf of the Bank.  On a quarterly basis, ILS will verify the notes in its possession and provide a certification to the Bank

An Assignment of Income is executed and recorded to give notice to others (i.e. title companies) of the Bank’s security interest.  It is a blanket assignment, and in many instances, there is no need to prepare additional assignments for individual sales.

While an Assignment of Income provides notice of the Bank’s security interest, it does not prevent the Investor from managing its portfolio of notes.  Thus, if one of the underlying notes receivable is past due, the Investor can proceed with collection of the note and even foreclosure of the underlying deed of trust.  When the foreclosed property is re-sold, the original note and deed of trust are delivered to ILS as custodian and the new note receivable becomes part of the collateral.

The Bank can establish parameters as part of its loan agreement with the Investor to establish a loan to value ratio and a borrowing base (based on lots in inventory and notes receivable balances).  The Bank can monitor its parameters quarterly using the information in the custodial certification that ILS provides.  If the Investor is over the established borrowing base, the Bank can require that the Investor make a principal payment to reduce the loan balance to meet the established borrowing base.

ILS and its attorney will strive to work with your Bank to provide a program to meet the needs of your particular situation.

Traditionally, a bank takes a security interest in the collateral that is being offered against a loan or line of credit.  If the collateral involves a portfolio of cash flow notes, each note is typically transferred into the bank’s possession.  This creates an extensive process up front and will eventually require consistent employee research when a note is paid in full or at any time an amendment to a note is required.

Investor Loan Services is one third-party loan servicing company that offers banks a solution called custodial services that alleviates much of the burden of the collateral management through a custodial arrangement.  ILS becomes the custodian of the notes and is ultimately responsible for the possession and management of the notes while ensuring the bank’s security interest in the collateral.  This management includes the receipt of note loan payments, management of any required foreclosures, and the monitoring of the borrower’s real estate tax payments paid either by the borrow or through escrow

Traditional collateral transfer arrangements are time consuming and difficult to monitor.  This custodial arrangement provides for less risk and less cost and allows the bank to establish parameters as part of the loan agreement.  Such parameters may include LTV ratios, borrowing base monitoring, payment arrangements, and reporting requirements.  In addition, quarterly custodial audits aid the bank in monitoring these parameters to ensure the bank’s borrower is in compliance at all times.

Michael Lamon
Chief Lending Officer
Texas Regional Bank

Customers who choose Auto Debit payments will have their monthly payment automatically withdrawn from their account on the same day of every month.   All that is required of customers is a one-time authorization form to set up the service for their accounts.  With Auto Debit in place, ?Investor loan service ILS is looking forward to an increase in the efficiency of its payment processing system.   Because payments are automatically withdrawn from customers’ bank account, Investor loan service ILS hopes to see a decrease in late payments, which is a benefit to both investors and customers.

The addition of Auto Debit services exemplifies the commitment of Investor Loan Services to improving the comprehensive experience for its customers and investors.   ILS is continually researching new technology and services that become available to offer loan servicing that meets the needs and demands of the loan servicing market.

Investor Loan Services, Inc. is a comprehensive real estate loan servicing company for investors and developers holding real estate notes. Investor Loan Services (ILS) offers a complete relationship for investors and their borrowers by providing payment collection, customer service, extensive investor management reports, loan documentation and strict audit controls.   ILS provides a range of services designed to maximize the investors’ revenue and accommodate the investors’ desired involvement with their customers.  For more information on Investor Loan Services please visit their website at www.investorloanservices.com or contact them at 1-877-399-1211.

In addition to establishing a solid foundation for the Company’s policies and procedures, Nellie was instrumental in our expansion of products offered in 2006, personnel re-staffing and cross-training opportunities in 2007 and 2008 and our software conversion project and Florida licensing in 2009.  ILS is well equipped to continue our vision for growth in services and market area as well as our commitment to our Investor clients and their borrowers.

Nellie commented, ““We are excited about the future.  I look forward to continuing the commitment to safety and soundness that ILS has established for our Investor clients, to the continued growth of our products and services, to developing additional efficiencies and utilizing technology to allow us to better serve our Investors and their borrowers, and to further expanding our market area to service Investors in additional states.”

Investor Loan Services, Inc. is a comprehensive real estate loan servicing company for individuals, companies, Investors and developers holding real estate notes.  Investor Loan Services offers a complete relationship for Investors and their borrowers by providing payment collection, customer service, extensive investor management reports and strict audit controls.  Investor Loan Services, Inc. and the Investor design a customized servicing relationship to maximize revenue, streamline cash flow and efficiently manage the Investor/Borrower relationship.

The licensing requires meeting strict guidelines and requirements that ensure that clients of Investor Loan Services (ILS )will receive the most professional and secure services available. The Mortgage Lender License in Florida are set forth by the Florida Office of Financial Regulation.  In order to be licensed in Florida, servicing companies must be adequately bonded and have annually  audited financial statements.  In addition, key personnel must complete extensive training and testing.

Prior to licensing in 2009, Investor Loan Services ILS received their first audited financial statements supporting their servicing growth in Texas and expansion to other states.  While this has not been a condition of loan servicing for ILS’s current market, this step further enforces their commitment to safety and soundness for their investor clients, as well as expanding their services to new markets.

Investor Loan Services (ILS) currently services notes in Texas and Florida while continually seeking out additional opportunities to extend comprehensive loan servicing to other markets across the country.

Investor Loan Services, Inc. is a comprehensive real estate loan servicing company for investors and developers holding real estate notes. Investor Loan Services (ILS) offers a complete relationship for investors and their borrowers by providing payment collection, customer service, extensive investor management reports, loan documentation and strict audit controls.   ILS provides a range of services designed to maximize the investors’ revenue and accommodate the investors’ desired involvement with their customers.  For more information on Investor Loan Services please visit their website at www.investorloanservices.com or contact them at 1-877-399-1211.