The steps involved in selling a note

You’ve probably seen ads for people selling their notes. But you’re not really clear on how these transactions work. Or maybe you’re interested in buying one yourself. Either way, you’d like to learn more about how they work.

We talked about how to structure a real-estate loan to maximize its return in an earlier article. Now let’s say that you’ve already set up the loan, you’ve collected at least one check from the borrower, and you’re calling a real-estate loan seller like Seascape Capital for the first time.

The first things that most note sellers think of when they’re thinking about buying notes are whether they can sell them for a profit and if so, how much. If that scenario suits your finances and the note is likely be worth a lot, you might consider going down that route.

But wait, you shouldn’t forget about other options in case you’re not satisfied with the one you’ve chosen. Sometimes, lenders like the rates they receive on notes, but just want to get some money now. Or, if your loan does not qualify for a high value (i,e, good equity and strong borrower credit), then you may wish to consider selling some of the payments. This is known as a partial, and it could help you achieve a higher rate of returns.

An illustration helps here. Suppose that you bought a home for $120,000 and received a cash gift of $20,000. You then took out a loan for $100,000 at seven percent interest per year for 180 months. After paying your mortgage every month, you would receive an extra $30,000 in monthly income. However, if you were to sell your home before the end of the period, you would owe the original seller $100,000 plus any accrued interest. So, the net amount you actually make would be only $10,000.

There are several different ways to structure the note purchase to fit your specific situation. You may want to talk to someone who has experience buying notes before making any decisions.

By the way, if you’re trying to get rid of the first mortgage, the things mentioned in the previous paragraph apply mainly to 1st mortgages. If you have an additional second mortgage, where there is a lender or investors who hold a more senior lien than yours, you might be able to negotiate some kind of deal, but the prices that you would probably be offered for the loan wouldn’t be anywhere near as good as they would be for a 1st mortgage. You would most likely not be able to get a deal like that unless the buyer had already invested at least $30,000 into the property (or $40,000 in the case of a 2nd mortgage) in cash or equity.

Now that you’ve received quotes from several different brokers, you’re ready to choose the right broker for your situation. Here are some important factors to consider when choosing a broker:You need to be careful when dealing with an unethical seller who might ask for money up front before providing any services.You shouldn’t need to pay anything extra for any points, close costs, or other “garage” charges. With rare exceptions (such as when you’re buying a car), any charges should already be included in your purchase price.The note buyer will usually pay for the drive-by appraisals and the titles commitments.Make sure that the seller provides you with a signed contract for the sale of goods or services. Ask them any questions that aren’t answered by the contract.Be sure that the note investor has checked the credit history of your property buyer before they agree to purchase the property. It is unethical for a seller to quote one price and lower it towards the close of the sale if the buyer’s credit score is low.

So, what are these steps? They’re quite simple and straightforward:If you want to buy a house, contact us and provide basic information regarding the property (such as its location, size, value, etc.). You may submit an online form or call us at 1-800-843-5377.We get back to you within one business day with an offer for you.We need to review these documents before closing so that we can perform our due diligence. Please provide us with any documents related to the loan (Deed of Trust, Mortgages, etc.) if they exist. If there is not an appraisal or title insurance available, we will pay for them.Once you’ve approved the quote and provided the necessary documentation, it usually takes 3-5 weeks before you get paid. You can choose to be paid by check or electronically.

Common Questions

The payee doesn’t change at all when a loan is sold. Only the location of the payor changes.We’ve noticed that people with good payment histories tend to be less likely to default than people who don’t have good payment histories. If we sell the loan to a bank, the bank will get a much better rate for the loan if the borrower has a good payment history.The price may go down during the term of the loan. However, if the price goes down, the borrower has the right to cancel the transaction without any penalties.