“What is a mortgage note (or real estate note)?” may seem like a simple question, particularly if you are currently holding a note. However, there are many individuals who may be holding a note unexpectedly or for the first time, so as a resource to these folks, we will be running a new blog series titled “Selling A Real Estate Note 101” where we will address the basics of real estate notes and how to go about selling a note.
The definition of a mortgage note:
A mortgage note (also called a real estate note or promissory note) is a written document that 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.
The mortgage note specifies: the sum of money to be paid plus interest, the rate at which it is paid until the promise is fulfilled, and assigns the borrower (also called the “holder” or “carrier”) who signs the note personal responsibility for repayment. Other variables, such as interest rate and payment types (balloon or interest only), will depend on the terms of the individual loan.
Types of mortgage notes:
There are a wide array of mortgage loans, ranging from: “conforming” (meaning it meets the purchase limits put forth by the government-backed lenders Freddie Mac and Fannie Mae) and “conventional” (which has not been underwritten and backed by Freddie Mac and Fannie Mae), to “jumbo” (when the purchase amount exceeds the limits established by the government sponsored entities) and “non-conforming” (which does not meet the criteria for ‘conforming’).
Mortgage notes are often associated with sales of property using owner financing, a type of financing in which the seller of a tangible item accepts a mortgage note as a portion of the purchase price (also called seller financing). Often times, owner financing can be a form of financing for individuals who experience difficulties obtaining a traditional mortgage loan through a bank.
Mortgage notes can be carried on many types of real estate properties, including residential, commercial, mobile and land.
Now that we have covered the definition of a mortgage note and the general types of mortgage notes, we can begin to understand the process of selling and buying notes. Our next series topic will address the questions “Should I sell my note?” and “What is the process of selling my note?”, so stay tuned.
Again, our goal is to continue providing you with important and helpful information about this process and hopefully answering your questions along the way. If you have a specific question that you would like answered, we invite you to give us a call today. We also welcome questions and comments below, so please feel free to share your insights and let us know of any mortgage note topics of particular interest to you.