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Note Buyers – Pitfalls to Avoid When Buying

December 17, 2021

What Are Mortgage Note Buyers?

There are numerous companies that focus solely on purchasing mortgage notes from lenders. When someone sells a mortgage note, the payments from the borrower do not increase or decrease in price, but they are sent to the new note owner. 

Mortgage note buyers include people and institutions within the secondary mortgage note market. These purchasers provide the owner of a mortgage note with a way to receive a lump sum of cash upfront rather than a stream of payments from a borrower.

What Are Private Mortgage Note Buyers?

Private mortgage note buyers are individuals and entities that purchase promissory notes secured by real estate. Many lenders have a need to sell the loans that they create to private mortgage note buyers as a way to recycle capital and continue lending to the public.

Both traditional and private mortgages include a mortgage note, but traditional mortgage payments are sent to a bank. This differs from private mortgage payments, where the borrower instead pays a private person or institution.

The owner of a private mortgage note can decide to keep the note and receive the monthly payments from the borrower or sell the note to a mortgage note buyer. If the owner of the private mortgage note decides to sell it, the amount of money they will receive varies on a few different factors.

These factors may include:

  • Credit score of the borrower
  • The property’s worth
  • The amount and interest rate of remaining payments
  • The length of mortgage term
  • The down payment made on the note

Some criteria to look for in a mortgage note buying company include:

Trustworthiness

A trustworthy mortgage note buying company will provide you with a quote without asking you to sign something beforehand. If a company asks you to sign something beforehand, it should act as a red flag that they may not be trustworthy.

Experience

A mortgage note buyer that has more than a few years of experience purchasing mortgage notes will likely be more knowledgeable about the process and pricing than newer companies.

Accreditations

Although not all mortgage buying companies have accreditations, these can be helpful in identifying whether or not they have the necessary expertise in purchasing mortgage notes.

Reliability

A reliable company has accessible contact information and can be contacted easily.

Choosing the Best Mortgage Note Company

Choosing a mortgage note buying company can be easy when you know what to look for. Look for a company that is responsive and can answer all of your questions. If the company you’ve chosen to work with isn’t providing you with enough information, explore other options and shop around to find the best mortgage note buyer for your needs.

Individual investors, businesses and institutions can purchase private mortgage notes. Sellers should explore their options to make sure they are choosing the best company for their situation.

If you decide to work with a note broker, versus a direct note buyer, the first thing you should do is verify that the note broker is licensed and legitimate. Although some states do not require a special license, many states do require these businesses to obtain certified real estate broker licenses.

Why Companies Buy Notes

So, what’s in it for these companies that buy mortgage notes? As with any business, there’s profit to be gained from purchasing and selling private mortgage notes. Note buyers purchase private mortgage notes at a price that will allow them to make their money back — and then some — once the loan term is up or when the property or loan is re-sold. Note buyers, like any real estate investor, are looking for high-yield notes that offer a solid return on investment.

There’s also a low amount of risk in note buying. Real estate has a long-running reputation as a safe investment; plus, its physical property serves as collateral for any deal gone awry. The investor always has the option to sell the property on the open market and make his or her money back — or even more than that.

Understand the process of buying a mortgage note.

Once you are aware of how a mortgage note works, you will need to learn how to buy a mortgage note from the bank. Follow this process below and keep in mind some key tips to be successful. 

  1. Determine your objective.

Before approaching a bank, you should have a real estate investment plan already in place. First, you need to determine your risk tolerance and whether you plan on flipping or holding onto the mortgage note. 

If you are looking for a steady payment stream that provides a high degree of income certainty, then you will likely look for stable and low-risk mortgage notes. If your goal is to make a big splash via a one-time trade and have the necessary risk appetite, you might consider a high-risk note trading at a significant discount.

  1. Find a note to buy.

Two major drawbacks of exploring the secondary market for private sellers are the pricing inefficiencies and lack of regulation. These factors often create a seller’s market. Even the most experienced note brokers can spend countless hours searching online sites for attractive deals from private sellers. 

This is where banks come in handy. Banks’ lending capacities are often hamstrung by the amount of perceived “bad debt” that they hold on their books. If they want to issue more mortgages, one way to increase capacity is to unload mortgage notes.

However, keep in mind that while a bank views mortgage notes as a risky asset, it does not necessarily mean the borrower has stopped making repayments. The particular risk profile might require such a designation independent of the borrower’s performance. Either way, banks often view selling the debt as an appropriate business decision, and this creates more favorable secondary market opportunities for note purchasers.

  1. Review the “tape.”

A mortgage note “tape” is a datasheet that discloses some of the information necessary to evaluate the mortgage note’s investment value. The tape should be one of the first resources used in the decision-making process.

  1. Skip customer service if possible.

You can save yourself time (and headaches) if you can position yourself directly in front of the bank’s decision-makers. As is the case with any products or services company, there will be barriers to entry for a new customer.

Not everyone who walks through the door, picks up the phone or submits an online appointment request is that interested in purchasing something. That is why companies have a customer service process in place — to reserve a decision-maker’s time for those looking to conduct real business.

That is the advantage of having a real estate investment plan. The company knows you’re serious, and more importantly, the decision-maker knows you will not be wasting their time.

  1. Determine your bid price.

Both bid and offer prices can demonstrate inconsistencies, and the final price is often subjective.

There are objective factors to incorporate into a price calculation. They can include (but are not limited to) the borrower’s credit score, the borrower’s performance, the remaining number of payments, the loan’s interest rate, the loan type and the loan’s final maturity date (when the loan is repaid in full).

Get the rewards of a rental property without the fuss.

Mortgage notes produce a consistent income stream without the daily nuisances of landlord responsibility. It is an ideal way to invest in real estate without a ton of time and effort.

Banks will typically be your most reliable source because they are usually looking to unload inventory. Be sure you know how to buy a mortgage note from the bank, however, before approaching an institution willing to sell.

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Buy & Sell Right Buyer for Mortgage Note

Promissory Note Buyers – What Are They Looking For?

December 10, 2021
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Choosing the right promissory note buyers is one of the most crucial steps when engaging in any type of financial and/or investment transaction. It is to see to it that you are working with the right people, the right professionals who know the rules and regulations your mortgage note should follow to ensure you do not violate any federal or state laws. If you are looking to sell your real estate promissory note, you need to make sure that you are aware of the steps you need to take and avoid some of the mistakes that are made when selling a note. 

What Is a Promissory Note?

Before we find out what the factors are that make up a perfect promissory note — one that any promissory note buyer would take interest in, let’s tackle the basics first: What is a Promissory Note?

A promissory note is a written agreement regarding borrowed money. It’s a promise to pay, and it should contain the terms of the agreement to do so. This type of document enforces a borrower’s promise to pay back a lender by a specified period of time, and both parties must sign the document.

It is a debt instrument that contains a written promise by one party (the note’s issuer or maker) to pay another party (the note’s payee) a definite sum of money, either on-demand or at a specified future date. A promissory note typically contains all the terms pertaining to the indebtedness, such as the principal amount, interest rate, maturity date, date and place of issuance, and issuer’s signature.

A promissory note establishes a clear record of a loan, either between individuals or between entities. By placing all relevant details in writing, a promissory note ensures clarity on due dates for payments and the amount of payments. It creates a legally binding promise with a mutual understanding regarding the borrowing and repayment of money.

A comprehensive and thorough promissory note should address six simple questions:

1.) Who the parties are

2.) How much the loan is for

3.) How you will repay the debt

4.) When the debt must be repaid by

5.) What happens if there is a default in payment

6.) Miscellaneous provisions

As a promissory note is a signed document that states a borrower has promised to pay what is owed (that they loaned) on the item in question, this can include a variety of types of real estate. For example, Residential homes, commercial properties, multi-family homes, land, and mobile homes to name a few.

Types of Promissory Notes

The common types of promissory notes include the following:

  • Commercial – These notes are more formal and detail specific conditions of a loan.
  • Investment – A company can decide to issue a promissory note to raise capital. The company can also sell these notes to other investors.
  • Personal or Informal – These notes generally involve one family member or friend loaning a sum of money to another family member or friend.
  • Real Estate – These notes accompany a home loan or other real estate purchase.

Classifications of a Promissory Note

Different classifications of a promissory note are appropriate for different types of agreements. You should create your promissory note to fit the type of transaction in which you’re involved. Promissory notes can be as simple as a one-time payment from a friend . Transactions such as car loans and mortgage loans require more complex promissory notes that cover details such as amortization schedules, interest rates, and more.

Simple Promissory Note

If you’re writing a promissory note for a lump sum repayment, you’ll typically use a simple promissory note. An example is lending your sibling $2,000. Your sibling agrees to pay your money back by January 1. A simple promissory note will state the full amount is due on the stated date; you won’t need a payment schedule. You can decide whether to charge interest on the loan amount and include the interest in the document if needed.

Demand Promissory Note

A demand promissory note makes payment due when the lender asks for the money back. You will typically need to provide a reasonable amount of notice to use this type of promissory note.

Secured Promissory Note

A secured promissory note secures the amount loaned with an asset of value, for example, a home or vehicle. If the borrower does not pay back the loan amount within the agreed-upon time frame, the lender has the right to seize property of the borrower.

For example, when you buy a house, the house is collateral on your mortgage. Your bank can seize your home if you do not make payments.

Unsecured Promissory Note

This type of promissory note does not allow the party lending the money to secure an asset for the loan. If the borrower does not make the payment, the lender must instead file in small claims court or go through other legal processes to enforce the note.

What Should You Include in a Promissory Note?

A promissory note should include all terms and details to which both parties of a loan are agreeing.Important details any promissory note should state include the following:

1.) Payor or Borrower – Include the name of the party who promised to repay the stated debt.

2.) Payee or Lender – Include the name of the lender, the person or entity, lending the money.

3.) Date – List the exact date the promise to repay is effective.

4.) Amount or Principal – State the face amount of the money borrowed.

5.) Interest Rate – If the loan involves interest, the promissory note should include the interest rate charged. The interest rate may be simple or compounded.

6.) Date First Payment is Due – A common arrangement is to have the first payment due on the first day of the month and subsequent payments due on the first date of the following months.

7.) Details of Each Payment – If multiple payments are due, the promissory note should include how often payments will be made as well as the amount of each payment.

8.) Date the Promissory Note Ends – In the case of an amortized loan, a loan paid off in a series of even and equal payments on a specified date, the date the note ends could be the last payment. An agreement could also involve a balloon payment, specifying a date on which the entire unpaid balance is due.

9.) Signatures – Make sure signatures of both the borrower and the lender are included on the promissory note. For a promissory note to be legally enforceable, the document needs the signature of each party.

Be Prepared In Time to Sell Your Note

During the preparation to sell your note, it is very important that you gather all records. Gather the records that confirm payments received, property insurance policies, property tax payments, and the original information on details of the note (e.g., property address, amount of the loan, interest rate, and the terms). There may be much more paperwork needed when the time comes to sell the note.

The potential note buyer will likely want the current credit report of the borrower currently living in the home. This is their way of protecting this investment and minimizing risk should they purchase the note.

What to Expect When Selling Your Note

It is important  to think that you are going to get the full value of the note. Note buyers are in the business of buying and investing notes and generally offer a discount on the note’s value. This is common because a note holder can cash out and receive a lump sum of cash while the note buyer can minimize their risk by purchasing the note at a discounted price.

There are risks of the note defaulting, which note buyers take into account. This, and the time and effort that goes into buying the note equals a discount on the value of the note. Depending on a number of different factors, a note seller can expect an offer anywhere from 60% to 90% of the value of the note. This is a broad range and could be more or less depending on how each note is valued, if the payments have been paid by the borrower on time, the credit of the borrower, current real estate market, or other factors.

The seller gets the cash up front, but note buyers expect a seller to realize that they, as the new note holder, would then assume all of the future risk.

Who Can Buy My Promissory Note?

Private individuals  purchase promissory notes on their own, but it is definitely wise to use an established and experienced company who has the knowledge and funds to buy notes. In some cases, a banking institution may wish to buy your note, as they are the majority of note holders in the nation.

However, for most note holders wishing to sell their note, a note buyer whose business it is to buy and invest in promissory notes will likely be the ones to purchase the note from you

What Is A Note Buyer?

The funding of money comes from the note buyer/investor when the note is bought and the seller is paid.

Note buyers are typically large companies that offer their services across the nation and a third party is not needed because the buyers purchase the notes straight from the seller. The buyer will generally have their own funds and can buy directly from the seller. 

One of the positive aspects to this is that the transactions are much quicker. Since the buyer does not have to go looking for an investor to fund the purchase, the process is easier and simpler. Buyer will have their set of guidelines which will determine whether they personally, should and can, make a purchase, and with a note buyer, they are able to notify a note seller promptly whether they can or not, depending on their funding.

Note buyers have the experience in this industry that is hard to beat. To become a note buyer, you must first become a note broker—this experience ensures that note buyers are experienced and competent to purchase a note without a third party involved.

When you are selling your note, it is in your best interest to deal with and sell to an established company that has experience of buying notes. Acquaint yourself with this information where you may need note buyers for your promissory notes and save yourself from future headaches and even litigation.

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Buy & Sell Discover How to Sell a Mortgage Note & Create Maximum Value Mortgage Note

What Are The Benefits Of Selling A Note?

December 9, 2021
Sell Your Mortgage Note

Mortgage notes are the promising notes that are issued against a mortgage loan, wherein the note owner promises to repay the loan amount within the specified time span. 

Now-a-days, selling and purchasing of mortgage notes has become a major part of real estate services offered by various investment firms in the US. 

Selling mortgage notes is a favorable way of investment that comes with an array of benefits for both sellers as well as buyers. 

Benefits of Selling a Mortgage Note

Note holders who choose to sell their private mortgage investment achieve a number of important benefits:

1.) They convert an uncertain stream of future note payments into an immediate lump sum of cash;

2.) They eliminate the risk, cost and hassle of needing to foreclose on the note in the future;

3.) By having cash and being liquid, they put themselves in a strong position to make a major purchase or investment;

4.) They will be able to pay off credit cards and other debts that are charging a high rate of interest;

5.) They won’t have to worry about the monthly payments they receive slipping away on life’s little expenses;

6.) They will liquidate their note investment while interest rates are still low and the market value of their mortgage is at its highest.

How Holding a Note Benefits the Seller

Though owner financed homes are not common, sellers would not hold notes if there was no benefit to it. 

The primary benefit of holding onto a mortgage note is the monthly income. After the down payment is accepted, they’ll receive monthly payments, plus interest, from the buyer for the length of the contract. When you don’t require a large amount of money right when the home is purchased, holding a note is a great way to add an extra source of predictable income secured by real estate.

Offering the option for owner financing may also draw in more potential buyers. Without needing to work through the mortgage process with a bank, some buyers may be more attracted to your home and it could sell much quicker. Closing can take up to two months or more in some states when mortgages are involved, so holding onto the note allows you to potentially get your home off the market and money in your pockets within a few weeks.

Advantages for Note Sellers

If you’re a seller, you have to understand all the benefits that you can avail by selling your mortgage notes. These are simply listed below:

  • You can convert long-term investment into an immediate cash source.
  • This liquid cash can help you handle any financial crisis with ease and take advantage of quick investment opportunities available.
  • No sooner do you sell your note; you receive a substantial amount of money immediately.
  • You need not worry about property taxes or insurance premiums, as all these things will be handled by the private investor.
  • You need not worry about installments anymore.
  • You have an opportunity to increase the return you earn from the asset by reinvesting the sale proceeds in better performing financial products.
  • You get access to display your notes for sale and expose it to a large pool of investors. It increases the chances of selling your note at much higher prices.

How Holding a Note Benefits the Buyer

Holding a mortgage note also benefits the buyer. As mentioned above, the biggest advantage is not needing to deal with getting a mortgage from the bank. 

This can be a long and stressful process for many families looking to move into a new home. With an owner financed property, buyers will be able to come to an agreement and move in much sooner.

It is also possible that owners holding the note will have more lenient qualifications, allowing buyers to purchase a home they may not have been able to otherwise. 

If a buyer has less than a 20% downpayment, they will not need to purchase private mortgage insurance (PMI). This is required by many banks if the minimum downpayment is not able to be met.

Advantages for Note Buyers

  • Note investors or the buyers are the companies with the great financial abilities to purchase mortgage notes at a higher scale. They majorly purchase mortgage loans that are in the form of home loans or anything secured by real estate and they can be anything from $10,000 to millions. And another matter of fact is that all the dealings done by the note investors are done against cash, be it of any amount.
  • When dealing with private investors, selling and purchasing of mortgage notes is as easy as a piece of cake. When landing a good buyer investor, top real estate services and tremendous opportunities are offered to note investors in town, and help them to create solid returns with relatively low risk. Investors seek better opportunities and help them understand how it’s fruitful to invest in projects secured by real estate.

Each mortgage holder will have a unique set of reasons for selling their mortgage note investment. The benefits you enjoy will be your own.

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Why Do People Sell Mortgage Notes?

December 9, 2021

Why do people, especially homeowners, decide to sell their mortgage notes? What motivates them to sell? 

The leading motivation for people selling mortgage notes is obtaining a large sum of money in a timely manner. For homeowners who need immediate cash flow, one option is to sell mortgage notes. Both private homeowners and real estate investors can sell notes to fund personal expenses or business ventures.

Depending on how much money you require, you can arrange one of these selling options with a buyer:

  1. Sell the entire note.
  2. Sell a specific dollar amount.
  3. Sell a percentage of the mortgage payment.

Why Sell A Mortgage Note?

The most common reason people, specifically private mortgage holders, decide to sell their mortgage note is to get hold of a lump sum of money to handle immediate needs.

Selling a note is a decision that is not always right for everyone, but can extremely be useful or profitable for many people with notes.

Selling your mortgage note would achieve other financial goals. Here are some of the most common reasons people sell their mortgage notes:

  • Invest in new real estate ventures.
  • Moving money to a different investment.
  • Obtaining a lump sum of cash
  • Build up emergency savings.
  • Stash extra money for retirement.
  • Pay off medical bills.
  • Pay off student loans.
  • Buying a house
  • Afford expensive home renovations or repairs.
  • Funding a family milestone, such as a college education or wedding
  • The need to divide an estate
  • The need to divide marital assets, which include a mortgage note
  • Concern about the risk of being a lender
  • Sometimes a homeowner turns to offering a private mortgage note to sell a house quickly, because the buyer is able to then bypass the traditional bank mortgage approval process. In these cases, the new note owners can sell the note quickly to receive the lump sum they needed all along.

So Why Should You Sell Your Mortgage Note?

One of the benefits of owning a private mortgage note is that it’s an easy investment to quickly liquidate. Some owners find that they’d rather have a large lump sum in lieu of a slow trickle of scheduled payments. Other owners sell a portion of their future payments to get a lump sum to handle a sudden financial need.

Why Would I Want to Sell My Loan for Immediate Cash Now?

When you convert part or all of your loan into cash, you gain several advantages in addition to immediate cash:

1.) You don’t have to worry about the payments you receive each month slipping away on life’s little expenses.

2.) You receive a substantial sum of cash right now, enough to accomplish some important goals.

3.) You don’t have to worry about collecting monthly payments or servicing your contracts; we handle all of that.

4.) You don’t have to worry about whether the taxes and insurance premiums are paid each year to protect your investment; we handle all of that.

5.) You don’t have to worry about whether your Borrower will continue to make his or her payments.

5 Reasons to Sell Your Mortgage Note Now

Those items aside, here are the top five reasons to seriously consider selling your note for cash today.

1.) The Housing Market is High

We have been there before haven’t we? You really don’t need a crystal ball to predict what is going to eventually happen.

Whether you want to call it a “crash” or a “correction,” the bottom line is that it can affect your pocket book if your payor becomes upside down in the property and ends up owing more on the note than the property is worth.

2.) Interest Rates Are Low

We have had a long run of banks lending money again. And buyers have been taking advantage of low rates.

Meaning, at this stage of the game, you most likely should have had a cash buyer or one that qualified for a bank loan. At the very least, if you charged a good interest rate, your payor should have seriously considered refinancing.

It could be time to cash out and keep your money.

3.) Stability

Let’s face it, the world is moving at a much quicker pace than it used to. The stock market moves the second a politician says something. Trade wars could go in our favor…or not.

All this turmoil makes for a lot of variables that don’t work in your favor. Don’t get us wrong…it could go very much in your favor…but it is a great unknown.

The question to ask yourself is would you rather roll the dice on the future economy, or ‘cash out’ and budget based on what you know you have?

4.) Seize the Day

The future is no place to place your better days. Maybe it is finally time to go on that trip to Europe, on a Caribbean cruise, remodel the house, or simply take a quiet family vacation on the lake.

Whatever you have been putting off for the future, maybe the future is now.

5.) Re-Align Your Goals

It is possible that you never really wanted to carry back a note in the first place, or it didn’t quite work out the way you hoped.

You don’t owe anybody any reasons for the change. We get it. Life happens. Situations change.

No matter what your reason for selling your note, we are here to help with a No Obligation Quote on what the fair market value of your note is today.

Did any of those reasons ring true to your current life situation? Are you thinking, “It’s time to sell my mortgage note.”? If so, request a FREE quote today and find out the value of your mortgage note. We have cash for your note now!

 

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Selling Real Estate Notes – How To Maximize Your Value

October 18, 2021
Selling Real Estate Notes

Selling Real Estate Notes – How To Maximize Your Value

Before we discuss what it takes to selling real estate notes, it’s important we understand exactly what a note is.  Truth is, there are a vast amount of people looking to sell real estate notes that are simply worthless.  Your’s could be as well if you don’t understand the following basics.  

Without the correct understanding of a real estate note and having the correct, legal documents in hand, you could find yourself barking up the wrong tree if you desire to sell a mortgage note.  

For a thorough understanding of mortgage notes and everything you must pay attention to if you’re ready to sell a real estate note, please read on.   

First Things First, What Is A Note?

A mortgage note (also called a real estate note or promissory note) is a legal contract between a borrower and a lender that obligates the borrower to pay the loan/mortgage off in a given time frame.  The contract creates a lien by pledging real property as security for a debt.  Mortgage notes go hand in hand with the deed of trust note, which transfers ownership of the property from the seller to the buyer. 

Simply put, it is a legal document that serves as an IOU from a borrower to a creditor or an investor. 

For the actual legal mumbo jumbo definition of a mortgage note, you can also visit this mortgage note definition here.  

What Information Is Needed to Create a Mortgage Note

The creation of mortgage notes can be confusing because in general they contain a lot of paperwork.  However, a simple checklist as below can serve you well if you plan to create a mortgage note yourself.  

In general, in order to create a legally binding mortgage note, you must have at least the following information in your contract.  

  • The total $$$ amount borrowed. 
  • The interest rate being charged on the note and whether or not it is a Fixed or Adjustable rate. 
  • The date payments are due. 
  • The loan term.  Is it for 30, 20, or 15 years or somewhere in between?
  • The place where payments are to be made.
  • Payment schedule.  Are the payments to be monthly or bimonthly?
  • Is there a balloon payment? Meaning, are you obligated to make a much larger payment in the future versus your normal monthly payment?
  • Is there a prepayment penalty on the loan?  Meaning, will you be penalized if you pay off the loan too early?
  • Down payment?  Does the mortgage require a down payment?  If so, how much?
  • Late payment consequences?  What happens if you don’t make your monthly payment on time?

Simply put, in order for a proper mortgage note to be created, it must have at least the above items addressed somewhere in the paperwork.  Believe it or not, there are people who create mortgage notes which they one day hope to sell but they don’t address all the important factors above.  

If not done properly, the mortgage note you created could be worthless.  This is why it’s in your best interest to use a qualified attorney to create your mortgage notes.   

What Are The Different Types Of Mortgage Notes

There are several types of mortgage notes in existence.  To make the understanding easy however, mortgage notes can be broken down into the following sub categories:

  • Secured
  • UnSecured
  • Private
  • Institutional

A Secured Note is one which is considered to be collateralized which simply means there is a tangible asset tied to the note.  In other words, if the borrower enters into a secured note contract and fails to abide by the note terms, the lender can take legal action to take ownership of the real estate or asset that was used as the collateral.  

In the world of mortgage notes, the real estate associated with the contract is the collateral.  In the world of a car note however, the car is the collateral.  In general, anything can be used as collateral when creating a secured note.  

An Unsecured Note on the other hand is pretty much the opposite of a secured note in that there is no asset pledged as collateral for the note.  As such, an unsecured note is understandably riskier than a secured note.  

A Private Note is simply a note created by a private individual.  For example, if you were looking to sell your car to someone in the form of payments rather than a lump sum amount, when and if you created a note to legally bind that contract, you basically created a private note.  

If you were to create a Private Note when selling a home, it is also sometimes referred to as a seller carry back or seller financed or owner financed notes.  These types of notes are typically common when and if a seller has a lot of equity in their home at the time of sale.  

When creating private notes, one has a lot more leeway in the terms of the note and the primary subject of this article is going to be about the sale of private notes.   

An Institutional Note however, is pretty much the opposite of the Private Note, in that it is created by institutions such as banks or credit unions.  When thinking of mortgage notes, this is what most people are referring to. Institutional notes must adhere to much stricter guidelines than private notes because they must comply with the Dodd-Frank Act and Bureau of Consumer Financial Protection regulations.

Why Would Someone Want To Sell A Note?

Now that you know the basics of what a mortgage note is and the different types of notes, let’s quickly cover why someone would want to sell a note.  Before we continue however, I want to reiterate that the content of this article is mainly about the sale of private notes. 

People look to sell their mortgage notes for a myriad of reasons.  The most common reason however is that the note holder simply wants a lump sum of cash now rather than waiting for monthly payments.  

The reason for wanting cash now could be a result of so many different reasons.  The most common however seem to be the following:

  • Need cash now to pay medical bills;
  • Need cash now to pay down debt;
  • Need cash now to invest in an alternative investment that has a better yield;
  • Need cash now to buy another house.  Perhaps when you sold the house with owner financing you were ok with that because you wanted to rent… but now that you are ready to buy another house, you need the cash;
  • Need cash now to pay for children’s college tuition;
  • Need to liquidate the asset because of a divorce; and/or
  • Want the cash now because you are worried about the guarantee of future payments

As you can see, there are numerous reasons why people want to sell their mortgage note.  In the end however, it usually comes down to one thing.  The seller simply wants a lump sum of cash.  It’s usually as blunt as that! 

How Exactly Do I Sell My Note?

Ok, so by now  you have learned exactly what a mortgage note is and have decided you want to sell it.  

Great… Now what?

Well, the next step of selling your mortgage note is pretty simple.  You just need to find a buyer.  

It just so happens I’m a buyer of mortgage notes and would love to make you a cash offer.  To make the process simple for you, I’ve actually created an eBook titled “The Note Holder’s Guide” which provides you all the details you would ever need to know about mortgage notes and how to sell yours.  

In the back of the ebook there is a Price Quote Form that you can complete and email to me at mikk@rehabvault.com and I’ll start working up an offer for you right away.  

To get the ebook simply click here and fill in the form in the top right to download the ebook.  

Here is a simple checklist of things you’ll need to sell your mortgage note.  

  1. Gather up ALL the documents you and your borrower signed when the mortgage note was created;
  2. Fill in the Quote Form you receive with the above ebook and email that to me with all your supporting documents above;
  3. Wait for me to contact you for any additional information I would need to get the offer ready;
  4. Review the offer and decide if it works for you;
  5. Once agreed, sign some simple additional contractual documents with me;
  6. Wait to hear from me about a time for closing;
  7. Go to the closing – or in most cases it’ll be done by mail – and enjoy the cash you receive delivered either through wire or overnight check

It’s pretty simple really.  

How Much Is My Note Worth?

By now I’m sure you’re wondering how much your note is actually worth and how much cash you will receive.  

It’s actually a great question and a very common one.  Unfortunately there isn’t a simple and straightforward answer.  

The reason is because the value of your mortgage note depends on several different factors.  These factors range from:

  • What balance remains on the mortgage note compared to the collateral/home’s value?
  • What type of credit does the borrower have?
  • How much down money did the borrower give you?
  • What type of payment history does the borrower have?
  • How many years remain on the note?
  • What’s the interest rate on the note?
  • Is the rate fixed or adjustable?
  • Is there a balloon payment on the loan?
  • Is there a prepayment penalty on the loan?
  • Are home’s in the area increasing or decreasing in value?
  • What type of property is it?  Residential? Commercial? Vacant Land?

As you can see there are a lot of different variables that affect what a note is worth.  The best way to really discover what it’s worth is to submit a price quote form.  

One thing I can tell you for sure however is this; when selling your real estate note, you won’t get 100% of the principal balance that remains on the note.  Note buyers or investors are always looking to buy a note at some type of discount in order for the purchase to make sense as an investment.   

How Can You Increase The Value Of Your Note?

If you’re ready to sell your note, here are some quick tips on making sure you get the best value for your note. 

  1. Make sure you have access to all the paperwork related to your note. 
  2. Make sure you can provide proof of your borrower’s payment history.  If your borrower has perfect payment history, your note is worth more and vice versa. 
  3. Consider selling only a portion of your note rather than the full amount.  This can be confusing at times but imagine your borrower has 200 payments left on the note.  It’s actually possible for you to get cash and only have to give up 100 payments in the future.  This is called a partial sale rather than a full sale.  
  4. Your note will sell for a greater percentage value if it’s for 10 years only as compared to 20 years.  Shorter term loans sell for a greater percentage.  
  5. Make sure the note documents have very clear terms. 
  6. Your note will usually be worth more if the interest rate is higher than the prevailing market interest rates at that time.  
  7. If you have access to your borrower’s credit report, provide a copy to us so we can see it.  Higher credit score borrowers will usually warrant a higher value for the note.  

 

 

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Buy & Sell Mortgage Note Right Buyer for Mortgage Note Tips on How To Choose The Right Buyer

The Right Buyer For Your Mortgage Note

September 24, 2021
Right Buyer

The Right Buyer for Your Mortgage Note

Before selling your mortgage note, it’s important to research several note buying companies to find the right buyer. Visit their website. If they don’t have a website, chances are they aren’t reputable. Also, many offer free consultations so you can call and ask about the company and the note buying process. Only choose a company that is and has been in business for over 5 years.

For many property owners, finding the right company to buy your mortgage notes can be a nerve-wracking experience. In most cases, you don’t get to meet your note buyer one-on-one. Note buyers live in distant cities, so you’ll only communicate via phone or email. So how can you find an experienced and reliable note buyer who will give you the best return on your investment?

What Are Mortgage Note Buyers?

Mortgage note buyers include people and institutions within the secondary mortgage note market. These purchasers provide the owner of a mortgage note with a way to receive a lump sum of cash upfront rather than a stream of payments from a borrower.

When a mortgage note is set up, the initial lender is the owner of the note, and the person agreeing to the loan is the borrower. Once a note owner decides to sell to a note buyer, the buyer becomes the new owner.

There are numerous companies that focus solely on purchasing mortgage notes from lenders. When someone sells a mortgage note, the payments from the borrower do not increase or decrease in price, but they are sent to the new note owner.

Tips On Finding the Right Buyer for Your Mortgage Note 

Experience

A mortgage note buyer that has more than a few years of experience purchasing mortgage notes will likely be more knowledgeable about the process and pricing than newer companies.

Accreditations

Find out if the mortgage note buyer has an A rating (at the very least), and no unresolved complaints. While it is not legally required, many leading note buying companies are accredited by the Better Business Bureau. If the company is accredited with a strong rating and no complaints, you can feel confident that it is a strong business.

Although not all mortgage buying companies have accreditations, these can be helpful in identifying whether or not they have the necessary expertise in purchasing mortgage notes.

Trustworthiness

Follow your gut feeling. Does the company seem trustworthy? Has it completely answered all of your questions? Does it seem to be looking out for your best interest? If you have answered yes to all of these questions, chances are you have found a dependable note buyer. If you don’t feel comfortable with the note buyer, then move on to another.

A trustworthy mortgage note buying company will provide you with a quote without asking you to sign something beforehand. If a company asks you to sign something beforehand, it should act as a red flag that they may not be trustworthy.

 

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Buy & Sell Discover How to Sell a Mortgage Note & Create Maximum Value How Much Is A Mortgage Note Mortgage Note Mortgage Note Worth

How Much Is My Mortgage Note Worth?

September 9, 2021
Promissory Note

How Much A Mortgage Note Is Worth?

Ever wonder how much a mortgage note is worth might once you decide to sell it?

Many factors affect how much a note buyer will pay for your mortgage note. These factors include the value of the property, as well as the payer’s equity, credit score and payment history. 

To help you understand how much money you will receive for your payments, here are the factors used to determine the value of your mortgage note:

  • Value of Property

  • Equity from Buyer (Down payment)

  • Property Owner’s Credit Score

  • Payment History on Note

  • Recourse vs. Nonrecourse

  • Other Factors

Value of Property

The value of the property which serves as collateral on the note is one of the first things a note-purchasing company looks at. The current market value of the residential or commercial real estate listed on the note can increase or decrease the note’s market value.

Keep in mind that real estate values can fluctuate over time. The amount listed on the mortgage typically is not the same thing as the current value on the property, or the amount for which the property was last purchased. If you’re not sure of the current value of your property, online resources such as Zillow can provide a rough estimate. During the note-selling process, a more precise quote is given.

A factor which affects property value is the actual type of the property. Typically single family dwellings maintain higher values than other property types like condos or manufactured homes.

Equity from Buyer (Down payment)

The equity the real estate’s owner has in the property factors into the value of the note. This includes the amount of the down payment, as well as payments already received from the property owner.

Not only does this factor determine how much money one would receive, but also it identifies if the seller-financed loan can even be sold at all. The more money you collect as a down payment when you sell a property and create a promissory note, the more likely you will see interest in selling said asset down the road.

The down payment determines how much equity the borrower has in the property, thus determining how secure that loan would be as an investment in an investor’s portfolio.

Property Owner’s Credit Score

The higher the credit score of the property owner, the higher the value of the note. More creditworthiness in the owner means the person purchasing the payments is taking on less risk. Because the buyer of the note is assuming less risk, that money is passed on to the seller.

Ninety percent of the time, credit score comes into play when pricing a note for purchase. It would be wise to review the credit of the person purchasing a property from you, if you plan on creating a mortgage loan to sell to an investor. 

Many sellers make the mistake of not pulling credit up front. Months or even years after the loan is created, they found out that the person making payments has credit so bad that the note cannot even be sold at all.

Payment History on Note

In order to receive top dollar for your mortgage loan, at least 6-12 payments must have been collected. We can still buy the loan if there are less than 6 months of payments made, but you may not receive absolute top dollar. 

It is also suggested that you collect all payments from the borrower by check, direct deposit or money order. If you plan on not depositing checks or money orders into your bank account, always make photocopies for your records. 

Payment history is usually the backbone to a loan sale due to poor borrower credit or lack of equity, or both. Always make copies. It is a good habit to get into if you are acting as a lender on a real estate receivable.

Recourse vs. Nonrecourse

The term “recourse” means the note has someone with whom recourse could be taken in the event the loan is defaulted upon. Though it does not bar it from being saleable, a nonrecourse note has significantly more risk, which degrades its value.

If the payer on the private mortgage is a corporate entity, trust or nonprofit, it helps to have an individual listed as the personal guarantee of the payer. By having a guarantee, it means the note has recourse in the event the entity, trust or nonprofit stops making payments on the loan.

Other Factors That Affect How Much Mortgage Note Is Worth

Interest rate and the length of a loan also help determine the value of the note. A higher interest rate and shorter loan term make for a more valuable note.

Interest Rate – Interest rate is a key mechanism of determining how much money one would receive if/when they sell a real estate note to an investor. The higher the interest rate, the higher the lump sum payment will be when the asset is sold.

Amortization / Pay-Back Period – The longer you stretch the payments over time, the less money you will receive when selling a seller-financed loan. The shorter the payback period, the more money you will receive. It is always recommended that you try to stay between a 10-year and 15-year payback period (or amortization) in order to receive top dollar for the asset you are selling.

Balloon Payments – When selling real estate notes balloon payments are viewed by some investors as a good thing and by others as too risky to buy. If you want to include a balloon payment, you will have to hire a licensed mortgage originator within the state where the property is located. 

Though these are the main factors taken into account when a company purchases a mortgage note, it’s a complex situation. The best way to know the exact value of your private mortgage note is to speak with a private investor such as Mikk Sachar.

 

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