Hey, Cal Ewing here. And in this series, we are talking about some of the risks involved in investing in mortgage notes and what we can do to mitigate those risks. Um, so today I want to talk about taxes. So when you buy first lien mortgage notes, like we do, if you're in first lien position, then you don't really have to worry about any other lien holders or anyone else having a priority claim because you get paid first.
If you have to foreclose, you're the one that gets first before the second mortgage holder or any. whatever mowing liens or anything that's behind you in the title hierarchy. Um, however, even if you own the first position lien, there is one thing that can haunt you and that is property taxes. Okay. So in almost, I think every single state.
If the borrower does not pay the property taxes, then the county or whoever's collecting the property taxes has the right to foreclose, and they can wipe out any other lien holders, um, even first lien holders like banks and mortgage holders and note investors and things like that. Whoever has the first position, you have to worry about your, um, investment if that property gets sold off for property taxes.
And so what we do to mitigate Is first of all, we want to check the tax record before we buy the note to make sure that the taxes are current. If they are not current, then we fade our bid or lower our asking price when we buy the note or offer price by the amount of taxes. Because we're going to go in when we buy the note, we're going to get the taxes paid right away.
Um, the other thing we're going to do is have our. Loan servicing company, first of all, stay on top of taxes for us, um, but they're also going to collect Taxes in the form of escrow payments every month. So a lot of notes They're already doing this when you buy the note But typically you're going to have the borrower pay a little bit every month usually 1 12th of the annual property tax amount They're going to pay that to the loan servicing company And the loan servicing company is going to hold that in escrow and make sure that the taxes get paid every year when they're due So by doing that and staying on top of it while we own the note, we never have to worry about the county foreclosing and potentially wiping out our investment into the note.
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