It is important that we choose our buyers wisely when selling on owner financing. This provides the fund with solid collateral on its loan against such notes, and it leads to a steady stream of payments coming into Hawthorne Interests over time. Those payments provide the cash flow that service the associated loans made from the fund to Hawthorne Interests.
We heavily screen our buyers and involve a RMLO (residential mortgage loan originator) for each owner financing sale. This dramatically increases the probability of a successfully performing note. Regardless, some loans will go into default. Here is how that process is handled:
1. When a note that we are collecting on goes into default, we continue paying the fund on its loan against that note as we foreclose on the property (ranchette) or have the buyer/borrower deed it back to us.
2. As we take ownership of the ranchette, we pay off the fund’s loan against the note, as that note (the collateral) is low quality and will soon be eliminated.