A mortgage note is a legal document for purchasing real estate, such as land, a house or a condo. The note defines the terms of the loan and requires borrowers to repay the loan within a specific period. It is also called a promissory note or mortgage promissory note. Mortgage providers initially hold the note but often sell it through the secondary market.
A private mortgage note refers to one held by a private source rather than a traditional lender. Private mortgage note holders could be a family member, a business, or the seller of the property. Holders of private mortgage notes often choose to sell the note as well.
Below are some tips for selling a mortgage note.
One way to be sure you can sell a mortgage note is to set it up properly in the first place. Many buyers will hesitate to buy a note if the buyer is a credit risk or if the buyer has not made a sufficient down payment. For example, a note from a borrower with a credit score of 550 will be much more challenging to sell than one from a borrower with a 700+ credit score.
If the borrower can’t make a large enough down payment, you may still be able to structure the deal for a sale by creating both a first and second mortgage. The first mortgage might be for 75 to 80 percent of the property’s value, with the second one being for the remaining 15 to 20 percent. You would then sell the first mortgage and keep the second.
Deed owners can sell all of a mortgage note or just a portion. Most sellers opt for a full sale, which sells the entire note for a lump sum. Both types of sales will provide immediate cash; the difference is in the amount. A partial sale can provide immediate cash while allowing the holder to retain a small ongoing payment stream.
Two types of buyers are generally interested in mortgage notes, real estate investors and institutional buyers. Experienced real estate investors will not yield the most for your note. You’ll want to sell to an institutional note buyer such as Deed Street Capital rather than a note broker in order to bypass the middleman and secure the best offer on your note. Also, realize that many institutions will want the payor to have made at least 3 to 12 payments first to show a history of on-time payments from the payor.
Note selling is a process. You’ll need to bring copies of the promissory note, title commitment and closing statement to the sale discussions. Many institutions will provide a quote based on these documents. Three main factors are essential in determining the size of the quote: the amount of equity in the property, the buyer’s credit score and the length of the payment history so far. If the quote is satisfactory, you’ll sign a sales contract.
After the contract is signed but before the sale closes, the buyer will thoroughly evaluate the property. The buyer also will conduct at least a drive-by appraisal and perform a title search to ensure no liens or other restrictions encumber the title.
Once the note buyer has verified the property’s value and found a clean title, the sale will close, and you’ll receive your money. The new owner will notify the borrower that the mortgage has been sold. The borrower’s terms don’t change; they’ll just make payments to the new owner.
Deed Street Capital buys mortgages for cash. We buy various types of mortgages, including:
We’ll make deals for partial or full note purchases with values between $25,000 and $3 million. Unlike some institutions, we’ll also buy portfolios that include performing and non-performing notes. Non-performing notes are those where the borrower is not meeting the payment terms. We are experienced buyers, provide a no-obligation quote and typically close the sale in less than four weeks.
Contact us today to see what your note is worth.