In real estate warehouse lending, a bailee letter tells the person who gets a mortgage or loan note that a third party has a security interest in those notes. The letter lets investors who are interested look at the notes, but it also protects the security holder’s right to the notes.
A note is a promise to pay back money that was loaned. If the money isn’t paid back, the note holder can foreclose. However, if someone else has a security interest in the note, that person has priority when the note is foreclosed. The bailee letter tells the possible buyer how the interest of the security holder can be released.