Whether needing immediate cash or simply wanting to simplify their lives, at some point, noteholders will wonder how to… sell my mortgage note.
A mortgage note (or deed of trust, land contract, or contract for deed) is a promise one party makes to another to pay a specific amount of money, plus interest, over time.
Real estate serves as collateral for the note, providing security. For this reason, mortgage notes are more valuable) than unsecured loans.
Like most contracts, notes can be sold or traded. Selling a mortgage note transfers any remaining commitment to the note buyer. A simple example is how you can endorse a check to someone else with the simple phrase “Pay to the order of” and a signature.
Who Buys Mortgage Notes?
Note Buyers, Private Investors, banks, and Wall Street hedge funds buy mortgage notes. Some advertise. Others only work with industry insiders.
Banks and Wall Street funds typically don’t like to deal with seller-financed notes. Note Buyers and Private Investors more commonly specialize in and seek to purchase these types of loans.
What Are The Steps To Selling My Mortgage Note?
Step #1 – Request a Quote
A phone conversation is best, but there are also online forms. Whoever you submit to will need information about the property sale, the collateral, the note terms, and your borrower.
Step #2 – Provide Copies of Documents
Buyers need to review copies of these documents:
- Promissory Note
- Mortgage, Deed of Trust, Contract For Deed, Land Contract, Real Estate Installment Contract, or similar…
- Settlement Statement
Although Note Buyers start by working with copies, it’s important to know where the originals are – especially the Promissory Note. At closing, you’ll hand over the originals.
Step #3 – The Offer
The buyer will present an offer – often verbally at first. Then there will be a written agreement which you as the Seller will sign. In addition to stating the price, the agreement specifies closing specifics and who pays costs.
Step #4 – Underwriting
Next, the buyer performs a detailed review process known as underwriting or due diligence.
This information gathering and review is required when you sell a mortgage note, deed of trust, etc. It includes checking the borrower’s credit, property taxes and insurance status, payer interview, and other important items.
You’ll also be asked to provide copies of additional documents such as the payment history, insurance policy, and existing title report.
Step #5 – Appraisal
The buyer’s team will order an evaluation of the current property – usually a Broker’s Price Opinion (BPO) or Drive-by Appraisal. This is to be sure the property value is still equal to or greater than the sales price. If the value comes in low, the buyer may present a lower revised offer for consideration.
Step #6 – Title Search
A title search verifies ownership of the property and the note. It also identifies additional liens that may exist. If the title search shows money is still owed on a prior mortgage or another lien, it can be paid from note purchase proceeds.
Step #7 – Closing
Now it’s time to sell your mortgage note. When the above steps are complete whoever is funding the purchase will send the final closing documents for signature. A title company or other 3rd party is often used to handle the exchange of money for the original note and transfer documents. Funds are typically paid in the form of a wire transfer or cashier’s check.
Will There Be A Discount?
Even premium mortgage notes are sold with a discount.
The reason for this is that there are costs associated with each transaction. Some Note Buyers, including Porch Swing Funding, absorb these costs so that our Sellers have no out-of-pocket costs.
In the seller-financed note space, there are usually other factors at play. Credit may be less than stellar, payment histories may not be perfect, and properties may not fall under the premium real estate category.
You will find different prices in the marketplace depending on who you speak with. For this reason, it can be advantageous to work with a Note Broker who has relationships with many Buyers. Like a matchmaker, a good Broker will find the best pricing.
Selling a partial is a great way to reduce your discount.
Does Borrower Need To Give Permission?
In most cases, no. Your promissory note could contain language limiting your ability to sell the payments, but it’s rare.
In other instances, a loan servicer, title, or escrow company collecting payments on your behalf may need to receive an acknowledgment from your Borrower, allowing them to transfer loan servicing elsewhere. Such restrictions are also rare.
How Long Does The Process Take?
It varies and largely depends on the completeness of the information you provide. Most transactions are completed and funded within 30 days. Some of our transactions have closed in half that time – but also some longer.
Where Do I Start?
Contact us to request a free note analysis. There’s no commitment to sell.