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Note Investing Due Diligence Checklist
Get your free note investing due diligence checklist and learn what to review before buying a mortgage note.
5 min read
Stay ahead in mortgage note investing with this comprehensive due diligence checklist. As part of your due diligence, evaluate key areas including the asset, loan performance, borrower, collateral, ROI, and more.
To help you make informed decisions, we created the 2025 Paperstac Note Investing Due Diligence Checklist. Use this free resource as a guide to reviewing critical components of a note deal.
📥 Download the Checklist (PDF)
2025 Paperstac Note Investing Due Diligence Checklist
Investing in mortgage notes can be an excellent way to generate passive income, diversify your portfolio, and gain exposure to real estate without being a landlord. But like any investment, success hinges on doing your homework.
Whether you’re evaluating a performing note, a non-performing note (NPN), or something in between, due diligence is critical. That’s why we created the 2025 Paperstac Note Investing Due Diligence Checklist — to help you analyze your next deal.
In this note investing due diligence checklist, we walk through the key areas to review when buying a mortgage note.
1. Asset & Deal Overview (Note Investing Due Diligence Checklist)
Start by getting a snapshot of the deal:
- Note type: Performing, non-performing, or re-performing
- Collateral type: SFR, condo, mobile home with land, etc.
- Lien position: First or second
- Origination date and loan term
- Unpaid principal balance (UPB)
- Monthly payment amount
- Property location and whether it’s in a judicial or non-judicial state
2. Collateral File Review
The collateral file is the backbone of your investment. Review it for:
- Original Note and Mortgage
- Chain of title and recorded assignments
- Allonges and transfer stamps
- Lost Note Affidavit (if applicable – crucial in states like Maine)
- HUD-1 Settlement Statement
- Active notary and recording stamps
- Verification that the seller is the last in the title chain
3. Property Due Diligence
Knowing the property’s condition and value is essential:
- Use Google Street View and satellite images
- Review servicer notes and get a drive-by via ProxyPics
- Pull recent sales comps and active listings
- Tools to use: Zillow, Redfin, PropStream, NARRPR
- Order a BPO or CMA once an indicative bid is accepted
- Confirm address, owner, tax status, HOA, and flood zone
4. Payment & Servicing History
Understand the loan’s performance by reviewing:
- 12–24 months of payment history
- On-time vs. missed payments
- Escrow account activity (taxes and insurance)
- Servicing notes that reveal borrower behavior
5. Borrower & Loan Performance
Try to understand the borrower’s financial behavior:
- Previous communication attempts and responses
- Payment consistency
- Loan modifications, forbearance, or bankruptcy
- Foreclosure filings or legal activity
- Employment or income (if available)
6. Legal & Compliance
Each state has its own set of rules — compliance is non-negotiable:
- Servicing laws (CFPB, RESPA, FDCPA)
- Licensing requirements for seller/servicer
- Foreclosure and eviction status
- Judicial vs. non-judicial foreclosure procedures
- Title search and senior lien verification
- Dodd-Frank compliance for seller-financed loans
7. Financials & ROI Analysis
Run the numbers before making an offer:
- UPB vs. property value (LTV analysis)
- Expected exit strategy
- Total acquisition cost and projected ROI
- Servicing, legal, and tax costs
- Investment-to-value (ITV) calculation
- Equity cushion (especially for NPNs)
- Create a basic cash flow model
8. Taxes & Insurance
Make sure the property is protected and compliant:
- Are taxes current? Any tax liens?
- Is there active insurance coverage (or force-placed)?
- Look out for code violations or risk of tax sale
9. Exit Strategy Evaluation
Before buying, define your plan:
- Hold, modify, foreclose, or resell
- Estimate legal and rehab costs
- Calculate potential profit and timeline
10. Servicing & Payment Info
If the note is performing or about to be boarded:
- Who is the current servicer?
- Transfer/boarding timeline
- Is ACH/autopay set up?
- Are taxes and insurance escrowed?
11. Seller Verification & Purchase
Vet the seller just as much as the asset:
- Look up their reputation in forums or deal groups
- Request prior transaction history and reviews
- Review the Bill of Sale and Loan Sale Agreement
- Confirm full chain of assignments
12. Document Checklist for Note Investing Due Diligence Checklist
Have the following docs ready:
- Collateral file
- Payment history
- Servicing notes
- Property report or BPO
- Title report and tax certificate
- Insurance verification
13. Final Review & Offer Price
Once your note investing due diligence is complete:
- Recalculate your offer
- Use a pricing calculator or manual method
- Submit a formal Purchase & Sale Agreement (PSA)
📌 Bonus Tip:
If closing through Paperstac, confirm the seller has completed the Closing Data step and uploaded draft versions of the Assignment and Allonge.
Want to Learn More?
Check out more educational resources at:
⚠️ Disclaimer:
This checklist is for educational purposes only and is not intended as legal, financial, or investment advice. Always consult with professionals before making investment decisions.
Learn More with Paperstac
At Paperstac, we’re dedicated to making real estate transactions seamless and secure. Visit our blog for more real estate insights and learn how to leverage innovative tools to manage note transactions effortlessly.
Thank You For Reading!
We hope you enjoyed reading this article from the Paperstac Blog! Don’t hesitate to get in touch with jessica@paperstac.com with any mortgage note industry topics or collaboration inquiries you would like us to cover on the Paperstac blog.
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