Selling Mortgage
Notes
A mortgage note is a legally binding document that defines the terms of a loan for the purchase of a property. Also called a promissory note, the mortgage note is the instrument for the loan and declares the sum of money to be repaid and the conditions for its repayment.
A private mortgage is a loan that is financed through a private source rather than a traditional lender. The lender could be a friend or family member, a business, or the seller of the property. When the home loan source is the seller, this is referred to as a seller-financed mortgage note.
Selling mortgage notes is an effective way to liquidate assets quickly, offering flexibility for those who hold them for various reasons.
Reasons to Sell a
Mortgage Note
There are some risks associated with holding a mortgage note. A note owner is acting as a bank would in a traditional mortgage lending arrangement. The note holder is responsible for collecting payments and assumes the risks associated with the borrower’s failure to pay. A common reason to sell a mortgage note is to mitigate one or more of those risks.
But risk isn’t the only reason a lender may consider selling mortgage notes. As a quick source of liquidity, selling mortgage notes offers numerous advantages.
Benefits of Receiving
a Lump Sum Payment
Selling your mortgage note for a lump sum payment offers significant advantages compared to holding onto the note for long-term payments. Here’s why more note holders are opting for this option:
- Immediate Liquidity: A lump sum payment provides instant access to cash, which can be used to cover urgent financial needs, such as medical expenses, debt repayment, or new investments.
- Financial Freedom: By selling your note, you free yourself from the responsibilities of managing payments and the risks associated with borrower default.
- Flexibility to Reinvest: Whether you’re looking to start a new business, invest in real estate, or fund a major life event, having cash on hand gives you the freedom to pursue your financial goals.
- Reduced Risk: Holding onto a mortgage note means taking on the risk of late or missed payments. Selling for a lump sum transfers that risk to the buyer, ensuring peace of mind.
- Simplified Finances: Managing a mortgage note can be time-consuming. A lump sum payment simplifies your financial portfolio, allowing you to focus on other priorities.
Deed Street Capital specializes in providing competitive offers that allow you to unlock the full value of your mortgage note. Experience financial freedom today with a hassle-free process tailored to your needs.
The sale of a mortgage note can finance:
Death or divorce
There is often a need to divide assets between two or more people in these instances. It's easier to distribute a mortgage note if it's sold and the involved parties split the proceeds equally.
Emergencies
Sometimes, unexpected expenses total far more than a person’s or family's available liquid funds will cover. A mortgage note is a relatively easy-to-sell, high-value asset, so selling it can provide the owner with the funds they need to address an urgent financial need.
Major life events
Whether sending a child to college or planning a wedding, some life events might require more money than many people have on hand. A mortgage note can be a great source of funding for such events.
Paying down debt
A mortgage note brings in money every month, which can help with paying the bills. However, sometimes it's desirable or necessary to pay off a debt in full. Selling a mortgage note allows the note holder to trade that portion of their monthly income for reduced monthly expenses.
Need for Capital
Mortgage notes can be an easy investment but not as strong as a successful business. Selling a mortgage note can provide a potential entrepreneur with the capital they need to get their business off the ground.
Who Buys When Selling Mortgage Notes?
Many of the features that make mortgage notes convenient and lucrative sources of income also make selling mortgage notes appealing to investors. For those looking to invest in real estate without the hassle of becoming a landlord, selling mortgage notes provides a streamlined and profitable option. Entire businesses specialize in purchasing mortgage notes and similar assets. Deed Street Capital, a trusted name in the industry, has been facilitating the sale of privately held mortgage notes for more than 20 years, offering a simple process and closing deals in as few as 30 days.
Finding the Ideal Buyer When Selling Mortgage Notes
The first step to selecting a buyer is finding one who buys the type of mortgage note you own. This precludes individuals and companies that purchase only from banks and other traditional lenders. Note, too, that even those who do buy private mortgage notes might not buy your particular type of note.
While private mortgages have attached notes, the underwriting process is significantly less structured than the process for traditional lenders. It’s even possible that the loan represented by the mortgage note isn’t secured, which is common with loans made by friends or family. In these cases, it can be significantly more difficult to find a buyer.
How much you can expect to receive varies from purchaser to purchaser. You would be wise to compare several offers before selling your real estate note. Deed Street Capital commits to matching or beating any bona fide written offer for your private mortgage note.
You should also be aware of scammers and other shady dealings. Since some private mortgage note sellers need quick cash, there’s no shortage of people looking to take advantage of the situation. If a company asks you to sign an agreement before they’ve made an offer, it’s best to avoid them.
Finally, you should perform due diligence. Start with an internet search for the company. If it doesn’t have a website, it’s a red flag. And if you find numerous complaints in the search results, you should avoid the company.
Understanding Performing vs. Non-performing Notes
When selling a mortgage note, it’s essential to understand the differences between performing and non-performing notes, as these classifications significantly impact pricing and buyer interest.
- Performing Notes: These are notes where the borrower consistently makes on-time payments according to the agreed-upon terms. Performing notes are highly attractive to buyers because they carry lower risk, typically resulting in higher offers. Buyers view these notes as reliable sources of income.
- Non-Performing Notes: These notes involve borrowers who have missed payments or are in default. Non-performing notes carry more risk for the buyer, which often leads to reduced offers. However, they can still be sold, particularly to investors who specialize in distressed assets.
The classification of your mortgage note can influence its marketability and pricing. At Deed Street Capital, we can assist you in addressing issues related to your performing and non-performing notes, offering solutions tailored to your financial goals. Whether your note is performing or non-performing, our experienced team can support you
What Is a Note Buyer Looking For?
Typically, a potential buyer is looking for information about the loan itself and information about theborrower. Details about the loan will include:
Loans with a higher down payment are perceived to have a more invested borrower, who is less likely to default on the loan and leave the purchaser of the mortgage note in a bad financial situation.
Although the buyer can’t raise the loan’s interest rate, they depend on it to make money above and beyond the principal amount. Higher rates increase the note’s worth.
Should the borrower refuse to pay, the new owner of the mortgage note will need to foreclose on the property. The more money they can get for the real estate, the more they’ll be willing to offer.
A potential mortgage note purchaser evaluates the same factors that a traditional lender would assess. They include:
- Whether the borrower is current on their payments
- The borrower’s credit score
- The borrower’s current income and ability to continue making payments
This information helps the investor determine how likely the borrower is to finish paying off the note.
How Much Is a
Mortgage Note
Worth?
The value of a mortgage note depends on several variables, which are important to consider when selling mortgage notes. Reputable buyers may offer around $0.70 on the dollar for the remaining principal balance, depending on the level of risk they must assume when purchasing the note. Since buyers can’t raise the interest rate to offset a riskier investment, they’ll typically lower the offer price instead.
How Market Value Affects Selling Mortgage Notes
Understanding how the market value of your mortgage note is determined can help you maximize its selling price. Market value is influenced by several key factors that note buyers assess during the evaluation process:
- Loan Terms: The length of the loan, payment schedule, and remaining balance are critical factors. Shorter loan terms and steady payment histories often result in higher offers.
- Interest Rates: Higher interest rates typically make a mortgage note more attractive to buyers as they promise greater returns over time.
- Borrower Credit: The creditworthiness of the borrower significantly impacts market value. A borrower with a strong credit score reduces the buyer’s risk, increasing the note’s desirability.
- Collateral Value: The value of the property securing the loan also plays a crucial role. A property in good condition, located in a stable market, can enhance the note’s worth.
- Payment History: Clean pay histories with no missed or late payments make the note more reliable and appealing to potential buyers.
Deed Street Capital uses these factors to provide a fair market offer, ensuring you receive competitive pricing for your mortgage note. With over 20 years of expertise, we streamline the process to help you sell quickly and confidently.
Why Appraisals Matter in Selling Mortgage Notes
Appraisals play a crucial role in determining the value of a mortgage note, providing both buyers and sellers with a clear understanding of the note’s worth. Here’s why they’re essential:
- Accurate Market Valuation: Appraisals assess the property’s current market value, which serves as the foundation for evaluating the note. A well-executed appraisal ensures that the note’s value aligns with real estate market trends, maximizing the seller’s return.
- Risk Assessment for Buyers: For note buyers, appraisals provide critical insights into the security of the loan. Since the property serves as collateral, its appraised value directly influences the buyer’s confidence and offer.
- No Out-of-Pocket Costs: At Deed Street Capital, we use a nationwide appraisal service that hires appraisers through a bidding process, ensuring there is no direct communication with us. This approach guarantees accurate, unbiased valuations. Additionally, we often cover appraisal expenses, so you can focus on the sale without financial concerns.
By ensuring transparency and accuracy in the valuation process, appraisals benefit both sellers and buyers. A reputable note buyer like Deed Street Capital leverages appraisals to provide competitive offers while ensuring a seamless transaction.
Increasing the Value of a Mortgage Note
Many factors that determine the value of a mortgagenote are beyond the current owner’s control. However, one of the most significant things they can control is paperwork. Buyers want to see timely payments, so proper record-keeping and proof of those payments are necessary.
While a note holder has littlecontrol over whether a borrower pays, they do have some small measure of control over a borrower’s credit score. By working with a loan servicing company, note holders can ensure that timely payments are reported to credit agencies.
Knowing the factors that a potential buyer looks for at the beginning of the process can help you create better terms for a future sale. Helping the borrower maintain good credit, setting the shortest possible loan period, and ensuring collateral to secure the loan will increase a note’s sale price should the mortgage note holder decide to sell at some point.
How Does Selling Mortgage Notes Work?
While selling mortgage notes isn’t always a quick process, it is fairly straightforward. Sellers may choose between a full buy-out or a partial sale. Once the terms of the sale are established, the potential buyer will request all available documentation related to the loan. This includes terms of the loan, payment histories, and any other information that can support the underwriting process.
Legal documents will be prepared once the note makes it through underwriting and a purchase decision has been made. All parties will then review and sign. After as few as 30 days, the closing is scheduled, and payments are made.
How to Sell a
Mortgage Note
If you’re wondering how to sell a mortgage note, Deed Street is here to help. The process is simple. To start, contact us for a free, confidential, no-obligation quote.
