If you’ve never sold a mortgage note before, then you’re new to working with Note Buyers. What do you need to know, and what should you expect?
Who Are Note Buyers?
Note Buyers who focus on “mortgage” notes purchase existing loans secured by real estate. The different types include:
- Promissory Notes & Mortgages (aka Mortgage Notes)
- Promissory Notes & Deeds of Trust (aka Trust Deeds)
- Land Contracts
- Contract for Deeds
As a Note Buyer and Investor, I view myself as a Real Estate Investor who focuses on paper rather than property.
No matter the type of loan, mortgage note buyers purchase the right to receive a given number of payments in exchange for an immediate lump sum amount. Said another way – we provide cash today in exchange for the right to receive payments in the future.
Will Working With Note Buyers Cost Me Anything?
Other than a little of your time, it shouldn’t. Most Note Buyers will provide a free note analysis, which includes a quote to purchase your full note, as well as at least one option to sell what’s called a partial – where you sell only some of your remaining payments to minimize the discount.
Truthfully, I’ve never encountered a Note Buyer who charges for providing a quote. If you do, I recommend moving on.
If you decide to sell, you can negotiate who will be responsible for appraisal, title search, and closing costs.
What Information Will I Need To Provide?
The most important information includes:
- Original loan terms:
- Loan amount
- Interest rate
- Loan duration
- Payment amount
- Balloon date (if applicable)
- Property sale:
- Purchase price
- Down payment
- Sale date
- Payment history
- Date first payment was due
- Number of payments received
- Are/have payments been made on time?
- Are payments collected by yourself or a loan servicer?
- Property information:
- Type of property (single-family, mobile home, land, etc)
- Recent appraisal (if available)
- Current condition
- Borrower information:
- Employment status
- Recent credit score (if available)
The best way to provide what’s listed above is by forwarding copies of the:
- Promissory Note
- Mortgage, Deed of Trust, or Land Contract/Contract for Deed
- Closing Statement
- Payment history report
Your Note Buyer will be able to help you identify the documents to forward.
Are There Different Types of Note Buyers?
Yes. Some are investors who buy for their own portfolios only. Generally, they focus only on certain types of loans or loans secured by real estate in a specific location.
Others are Note Brokers who work with a network of buyers. The advantage is that they’ll be able to bring your loan to those who will pay the most for it. Also, because Brokers usually deal with a higher deal volume, they’ll tend to know who can close deals quickly and fund the soonest. A Broker collects a fee that should be paid by the Buyer, not the Seller.
The third type is a combination of the above. Porch Swing Funding falls into this category – which is the most customer-focused approach. As an investor, the note buyer knows what makes a good note and can give the best feedback on your asset. When deals aren’t a fit for direct investment, businesses falling into this category (the good ones) will work to find the best buyers and present the most options.
Am I Obligated To Sell My Note?
Not with businesses like ours, and not with most Note Buyers you might contact. It’s a good idea to obtain a note analysis every 1 – 2 years so you know what your note is worth, and can identify opportunities to preserve its value.
How Do I Know A Note Buyer Is Reputable?
Take your time to get to know your buyer. If you’re not in a hurry to sell your note, but the buyer seems to be in a hurry to “make the sale,” move on.
Professionalism counts. If the Note Buyer promises to provide information or a quote by a specific day and doesn’t or doesn’t take to the time to contact you on that day to explain why there was a delay, then move on.
If they don’t appear organized, can’t explain things, so you understand them, and don’t present themselves or their company in a professional manner, move on.
Some Buyers “overquote” to get your mortgage under contract, then during due diligence claim they can’t honor the price. While sometimes things come up in due diligence (usually low property appraisal values, borrower credit scores, or issues with the payment history), your Buyer should be upfront regarding these issues and fair with you should any arise.
You can always ask for and verify references. If your Buyer also acts as a Broker, you can request to speak with investors they’ve worked with. Many businesses (such as ours) maintain a relationship with the Better Business Bureau. We put that information out there to remain accountable.
Finally, involve a third party such as a licensed Escrow or Title company to handle the closing. They will manage all funds going in and out of the closing process. Local Title and Escrow companies are familiar with city or county recording requirements, which is a benefit as well.
The best Note Buyers are like tour guides through the mist. They aren’t satisfied until you understand how your asset was valued and the particulars regarding your options.
Provide the best and most complete information you can, and you’ll receive the best results.
Contact us for a free note analysis. We’d love to share more of our knowledge with you.
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