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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.

Selling a Real Estate Note 101: Should I sell my note and what is the process?

There is a lot to consider when deciding to sell a real estate note (also called a mortgage note or promissory note). Last week we answered the question What is a mortgage note?. Here we take a look at some of the common reasons why people may want to sell mortgage notes and walk you through how to sell a note.

Should I sell my real estate note?

Let’s be honest- this is a personal question that only you can answer. What we can do is give you important information about selling a real estate note to assist you with making the best decision possible for you.

Some of the common reasons why people choose to sell a mortgage are:

  1. To receive a lump sum cash payment (often for the purpose of paying off unexpected expenses such as medical bills, tuition, or large purchases, or to make other investments or reinvest at a higher interest rate).
  2. To eliminate the burden of managing payments, insurance, and taxes.
  3. To simplify their estates for their heirs, or in the event of a divorce.
  4. Additionally, selling your mortgage note (or deed of trust note) frees you from worrying about default and foreclosure, bankruptcy of the payor, or the property becoming devalued.

How do I sell my mortgage note?

Once you have decided to sell your mortgage note, you can take the first steps in the process of
selling a note.

To save yourself time and frustration, we recommend that you start by gathering the paperwork and information you will need to provide to prospective note buyers. This will include: knowing the sales price, any lien information, current payment terms and type of payment, and a detailed description of the property. If selling a commercial note, you will also need: leasing information, zoning information, and the environmental history of the property. This will facilitate the process of getting a quote.

Next, you will want to find a mortgage note buyer. It is a good idea to contact several note buyers to establish a comfort level, ask questions and get mortgage note quotes. It is especially
important that you find a trusted note buyer whom you find to be a valuable resource and operates on a high level of honesty and integrity (which we will cover in more detail later in this series).

Every note buyer has their own process, but most should be able to quote you a purchase price and conditions of the sale within two business days or less. Remember, getting a quote does not obligate you to sell to that buyer.

If you are still feeling confused about whether selling your real estate note is right for you, please give us a call so we can answer your specific questions. Next week’s topic will be on how note buyers determine the worth of a note. As always, if you have additional information
to offer or general questions you think others might have as well, please enter them in the comments below and we will be happy to respond.

We hope to see you next week.

Selling a Real Estate Note 101: What is a Mortgage Note (or Real Estate Note)?

“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.