Tag Archives: mortgage note broker

Selling a Real Estate Note 101: Best tips for selling and buying a mortgage note

Welcome back to our series “Selling a Real Estate Note 101”. If you have been following along, hopefully you have gained a basic understanding of what is a mortgage note, the process of selling your mortgage note, how the value of your note is determined, what to look for in mortgage note buyers, and some knowledge of your note sale options. If you would like more information on any of the above topics, please call us directly so we can help answer your questions.

Now that we’ve covered the basics, we wanted to summarize the most important tips for selling a mortgage note (also called a real estate note or promissory note), and helpful tips on how to create a mortgage note for a future sale.

Best tips for selling a mortgage note:

  1. Familiarize yourself with the process of selling a mortgage note, how the worth of your note is determined, and what to look for in a mortgage note buyer- BEFORE you start requesting quotes. Having your paperwork and questions on hand when speaking with potential note buyers will facilitate the process of negotiating the sale of your note.
  2. Explore your options; every mortgage note is different. For example, selling only some of your payments (known as a partial) may be more advantageous for you and may offer a higher rate of return. A trusted and reputable note buyer can help you determine your best options.
  3. Verify that there are no upfront fees to the seller (with few exceptions), as these are already figured into the purchase price.
  4. Make sure the mortgage note investor checks the credit of the payor/buyer upfront to avoid any sudden drop in purchase price quotes due to unforeseen credit issues.
  5. Review your written purchase agreement with a Real Estate Attorney, if possible.

Seascape Capital Best Tips for Selling and Buyer a Mortgage Note

Tips on creating a mortgage note for owner financing (also called seller financing):

If you currently hold a note that you may consider selling in the future, one option is to sell your real estate note to a buyer using owner financing. Some of the common reasons people choose owner financing include: attracting more potential buyers for your property, offering more flexible terms (often the case when working with buyers who are not able to obtain financing through a bank), or managing a sale between family members or as part of a divorce agreement. These tips can help you create value and structure your mortgage note for an optimal sale through owner financing.

  1. The larger the down payment, the better. For residential, a down payment of 10% is ideal, 20-30% for commercial notes.
  2. The more equity in the property, the better. This is achieved, in part, with the down payment mentioned above, as well as principal payments received. This adds value to the mortgage note.
  3. Consider the credit of the buyer and always obtain a current credit report. Ideally, the credit score should be 600 or above (the higher, the better). Their credit rating can influence the value of the note and can play an important role in determining a down payment to protect your property.
  4. Make sure that the sales price is aligned with current market values and that interest rates are comparable to bank rates.
  5. As with most real estate, the condition of the property is another important consideration when creating value for your note. A note will be worth more when the property is in good condition, located in a desirable area (with access to power and water if it is a land contract), and is currently owner-occupied and well maintained.

Whether you want to sell your mortgage now or in the future, we hope you find these tips helpful. If you have any insight that you would like to offer our readers based on your experiences with selling notes, or would like us to address any particular topics of interest, please share them in the comments below. As always, thanks for reading and please feel free to pass this information on to others!

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Selling a Real Estate Note 101: Can I only sell part of my mortgage note?

Can I Only Sell Part of My Note?Selling a mortgage note (also called a real estate note or promissory note) can be confusing, especially if you are a first-time note holder and have never worked with a note buyer before.  This “Selling a Real Estate Note 101” series is designed to be a resource for those people.

In a previous post, we covered the common reasons why people sell their mortgage notes and how that process works. What we haven’t addressed yet, however, is the option to sell just part of your mortgage note (also called a partial). Here are some of the common questions about partials.

Why only sell part of the note?

  1. In tough economic times, the note seller may not be able to find a buyer for the full value of the note (or the seller would have to take a bigger discount). For more information on how the value of a note is figured, please read What is my mortgage note worth?.
  2. Sometimes the seller only needs a small sum of cash for a particular purpose (college tuition, unexpected medical bills, to reinvest, or pay down debt, for example).
  3. Selling a partial note provides the seller with immediate cash flow now while getting the note back in the future (once the partial sale’s terms have been fulfilled) to collect remaining scheduled payments.
  4. The seller also gets the flexibility to sell another part of the note at a later time, if they wish.
  5. A partial note sale will often yield the seller more money for their note in the long run.
  6. Another advantage to the partial note seller may be the delay in some of the capital gains taxes.
  7. It is easier to find a mortgage note buyer since buying a partial note is considered a less risky investment.

How does a Partial work?

  1. In a full note sale, the buyer purchases the entire amount of the note, meaning all of the remaining payments. In a partial, the buyer agrees to buy part of the note, usually in the form of a specified number of payments (e.g. 60 monthly payments), or a specified amount of the balloon payment. There are even partial sales (called a split partial) where the note seller and note buyer split the monthly payments. For more information on the different options for partial note sales, please contact us.
  2. Typically, note investors require a minimum note balance of $50,000 before they will consider investing in a partial note.
  3. The process of selling a partial mortgage note is very similar to selling a full note. Please refer to our post on Should I Sell My Mortgage Note? for more information on the process and paperwork required to get started.

The bottom line is that a partial can be a win-win when it reduces the amount of discount the
seller takes and makes for a more secure investment for the buyer. To talk about your options
with a partial sale or just have your questions answered, please give us a call.

Next week, we will be covering more important tips for selling a mortgage note. Please
comment below to let us know if you have found this information helpful or if you have been able
to share it with someone who has. We invite any and all feedback!

Selling a Mortgage Note 101: How to Find a Mortgage Note Buyer

Updated May 2017

Note holders are sometimes not clear about the differences between a mortgage note buyer versus a note broker.  More importantly, they are not sure about the advantages of working with each.  In this article, each type is described, as well as detailing what to look for in both.

 

Mortgage Note Buyer vs. Note Broker

When you sell your mortgage note (also called a real estate note or promissory note) to a direct note buyer, that means the individual that you are working with is the direct purchaser of that note- he or she is the note investor and is responsible for providing the cash for the note sale. Without the involvement of third parties, there are no broker fees or commissions incurred in the sale of your note, and since you are dealing directly with the mortgage buyer, it can sometimes make for a smoother transaction. The discount that is figured into the sale plus the established interest rate on the note will account for how the note buyer makes money.

The main responsibility of the mortgage note broker, however, is not to use their own cash for notes, but to “list” your mortgage note for sale and find the most suitable investor. Mortgage note brokers typically have a competitive network of investors with whom they work closely to find the best match for your note sale. Note brokers make their money from commissions paid to them by the investor when the note purchase concludes.

In some cases, as is the situation with Seascape Capital, the mortgage note buyer may act as either a direct note buyer or a note broker, depending on which is most appropriate for the situation based on the location of the property and the characteristics of the note. As a seller, this gives you the added advantage of making sure your goals for the sale of your note are met.

Either way, it is especially important to work with a reputable mortgage note buyer and/or broker in whom you have confidence and can trust.  The bottom line is that you should be able to receive a competitive offer regardless of whether you work with a note buyer or a note broker, as long as you follow the guidelines below.

What to look for- and look out for- in a note buyer

So how do you know if you can trust a prospective note buyer or broker? Here are some important considerations and things to look for:

  1. Your note buyer or broker may need to be licensed in the state of the property. This license regulates note buyers and ensures that they adhere to industry standards for the seller’s protection.
  2. Look for an established history of note buying- the buyer’s demonstrated experience and expertise will mean less potential for things to go wrong and a more knowledgeable buyer typically has more resources.
  3. Before you commit to anything, be sure to check your buyer’s reputation by asking around and talking to references. Chances are, if enough people have been unhappy with a past transaction with this buyer, there will be signs of it. At the very least, conduct a Google search on the company and individual, check the status of their license, and consult the Better Business Bureau to review their rating.
  4. It is always a good idea to compare quotes. This is especially important for uncovering any hidden fees (such as closing costs) that you may not know to anticipate. If, after talking with a note buyer and getting your questions answered, you do not feel confident in their integrity or trustworthiness, keep looking for someone more to your liking.

How to Find a Mortgage Note Buyer

There are a few warning signs of which to also be aware when talking to prospective note
buyers, such as:

  1. Your intuition (or, “gut check”). Common sense tells us that if it sounds too good to be true, it probably is.
  2. A price quote that you receive should be valid for at least ten days.  If you are quoted a price that is only good for one day, or you are being pressured to commit to a sale, politely tell the person that you will be looking somewhere else.
  3. If you are asked to pay costs upfront, this is usually a red flag. The discount you take when selling your mortgage note should cover most of the buyer’s expenses. Be cautious of hidden fees.
  4. There are four main reasons the value of a note could go down: 1) credit issues, 2) property is valued lower than the sales price and/or is in poor condition, 3) problems with the documents, and 4) defects on the title that cannot be corrected. Be familiar with these so you can be proactive. If you feel that you are being subjected to a bait-and-switch ploy, promptly end your transaction and report the buyer to state authorities.
  5. Generally speaking, any pressure or coercion to accept a lower sales price is reason enough not to sell to that buyer.

We certainly hope this has been helpful in differentiating direct mortgage note buyers from
mortgage note brokers, and alerting you to important information about the process of selling a
real estate note. As always, we are happy to answer your specific questions, so feel free to give us a call.

As we continue our series of “Selling a Real Estate Note 101”, next week’s topic will cover more
important information you will want to know when selling your note. We hope you will join us
and feel free to leave comments or questions below- chances are, if you’re concerned about it,
someone else is too.

Union Armies — Mortgage note broker

A story in my local newspaper this week demonstrated the absurdity of some special interest groups – notably, public education unions.  Teachers at the California State University system have good pay, excellent health benefits, a great retirement system, and job security far in excess of most anybody in the private or public sector.  So, it is disgusting to find out that the CSU faculty union is picketing and has authorized a strike (with 90% member approval) to protest the rescinding of pay raises.  These raises were pulled back because of budget cutbacks in California caused partly by the unions.  In these days of 16%+ unemployment (including the long term unemployed), with 49 million people below the poverty line and about as many on food stamps, one would think that the union leadership and members would have some sensitivity toward what is happening in the real world.

The public education unions have been a powerful political force in California for years, and the state is worse off because of that.  While most teachers presumably care about the children that they teach, the unions certainly do not.  They fight against charter schools, home schooling, discipline or firing of bad teachers, and any attempt to rein in the power of the unions and their cronies.  About three years ago, I asked a school superintendent about these issues.  To his credit, he gave me an honest answer rather than the politically correct one that I was expecting.  He stated that the teacher unions and the prison guard union always had a seat at the table of any legislative meeting, meaning they have a lot of power over certain politicians.

Last year, a friend recommended that I read a book called “Plunder”, which goes through the political shenanigans of unions, and how public servants make themselves into public masters.  The author noted how, in 2006, only four out of ten students in grades two through eleven were at or above the level of proficiency in language and math.  In some school districts like Los Angeles Unified, less than half of students get a high school diploma.

Andrew Biggs and Jason Richwine recently wrote an article in the Wall St. Journal showing evidence that public school teachers are not underpaid.  When comparing similar education backgrounds and comparable achievements on objective tests of cognitive ability, salaries are about even, while fringe benefits push teachers well ahead of those in the private sector.  States and cities always hesitate to cut teacher pay or benefits because of public perception that teachers are underpaid and because anything that adversely affects teachers’ unions means that they somehow “don’t love the children.”

Now, this is not to show disrespect for teachers in any way.  Most of the teachers that my own children have had were quite good.  Personally, while I don’t feel that there is a need for any public-sector unions, I could accept having them if they actually had good education as a goal and stayed out of politics.  Alas, that is not the case.

If we could get corrupt politics and unions out of education, I have no doubt that our children would enjoy the benefits, and that taxpayers would be getting a better return on their tax dollars.  Good teachers would be rewarded and bad teachers would be terminated (Los Angeles succeeded in firing only five teachers over the past decade … out of 33,000).  Perhaps a school district cannot be run like a business, but certain business principles would certainly help.

Alan Noblitt is a mortgage note broker residing in California.  Although Alan’s company buys mortgage notes too, being a mortgage note broker allows him and his investor partners to buy notes on nearly any type of property and in all 50 states.

How to Invest in Real Estate Notes — Part 2 of 4

If you did not already read Parts 1  of this article, please find it in  How to Invest in Real Estate Notes – Part 1 or request copies from the author.

Hopefully, Part 1 of this blog piqued your interest in real estate notes.  If you know what you’re doing and don’t get overly aggressive, being a mortgage note buyer can be quite profitable and have less risk than many other investment alternatives.  Here, I will go into the basics of finding a mortgage note broker and the beginning phase of buying a mortgage note.

As in most things, the fastest and safest way to get started is to get together with a trusted and experienced individual.  Check out potential note broker partners thoroughly with the Better Business Bureau and do a Google search to ensure that you’re not dealing with a scumbag.

Once you’ve found a good broker, let them know that you would be interested in buying a small mortgage note or two to get your feet wet.  You will need to tell him or her
the note parameters that interest you – geography, property type, minimum payer credit score, etc. – and the yield (rate of return on your investment) that you
require.  Just as you have a choice of brokers to work with, keep in mind that the broker has a variety of investors that they can use.  So, try to find a niche (i.e. property type or geography) that the broker doesn’t already have covered, and run with that.

Once you have established your parameters and partnered with a broker, be prepared for when that broker sends a real estate note opportunity your way.  You’ll need to offer a competitive price to that broker, who will then offer the mortgage note holder a slightly lower amount, with the difference being the broker’s commission and coverage of his expenses.  The broker will expect you to present a quote to him within 1-2 business days of receipt of his quote request.  More importantly, assuming that the documents and property values are as they were originally presented, you MUST honor that quote.  If you arbitrarily change quotes or back out of the deal without a valid reason,
the broker looks bad in the eyes of the client and won’t want to work with you again.

If the price presented by the broker is accepted and the client agrees to sell his note, then the due diligence process begins.  A competent broker will get all of the information related to the real estate note and send it to you for review.  This would include the payer’s credit report, a purchase agreement signed by the client, and copies of all documents from the original transaction.  In Part 3, we’ll dig into the due diligence process in more detail.