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If you're a real estate investor needing quick cash, selling
your notes could offer a fast, easy solution.
It can happen to anyone. You find yourself in a situation where
you need a chunk of cash--instantly. Maybe you have to handle an
emergency or simply want to free up funds to invest elsewhere.
Whatever the case, selling mortgage notes can put money at your
disposal within a matter of weeks.
Selling mortgage notes allows you to convert small monthly
payments into an almost immediate lump-sum of cash. You won't
have to wait to recoup the bulk of your investment. Plus, you
can avoid the risk associated with owner financing. And you can
spend the money however you want; it's yours and there are no
strings attached.
Mortgage note buyers purchase a wide variety of privately-held
mortgage notes, including promissory notes, land sale contracts,
deeds of trust, contract for deeds and other debt instruments
secured by virtually every type of property. They can work with
you if you're receiving payments on residential, commercial and
other types of property.
Some examples of the type of notes you can sell, include:
* Residential Notes - For houses, townhouses, condominiums,
apartment buildings, and mobile homes
* Commercial Notes - For office, retail and industrial
* Vacant Land Notes - For developed land, undeveloped land and
land not designated as a specific-use property (such as farm
land or waste storage)
How It Works
Selling mortgage notes simply allows you to receive cash now for
your future payments. You may be eligible to take advantage if
you've sold your home or an investment property via owner
carry-back financing or seller financing and are now receiving
payments on that note. You could be cashed out in two to three
weeks, receiving the funds by check or electronically.
Most note buyers prefer to buy real estate secured notes that
are in the first lien position or wrap around the first lien
position. If you have a second lien--where there's a bank or
another investor with a more senior lien against the
property--you may be able to sell the note. However, the price
that you get won't be nearly as high--unless the buyer has at
least 30 percent of his own money as a down payment or in
built-up equity.
Here's how the process of selling notes works: You need to
contact several mortgage note buyers and request a quote. They
will probably ask you to submit copies of the deed of trust or
mortgage, the note, title policy, and closing/settlement
statement. If there is no recent appraisal or title policy
available, they may be ordered at the note buyer's expense.
Each of your notes will be evaluated on a case-by case-basis,
with a number of aspects considered. These factors include the
purchaser's equity, payment history, seasoning of the note,
credit rating of the buyer, term of the note and the remaining
balance due on the note.
A Variety of Ways to Sell Notes
If you're like most note sellers, you may automatically think of
selling the entire note. That could be the best route if the
note represents a high value and this is the best fit for your
financial situation.
However, you also have the option of selling only part of the
note. This could be ideal if you like the interest rate you're
earning on the note, but just want to receive part of the cash
now. Over the long run, a partial payment may be able to provide
you with a much higher rate of return.
For example, let's say you sold a house for $120,000, the buyer
gave you $20,000 as a down payment, and you have a $100,000 note
at 7 percent for the next 15 years. You enjoy getting the income
each month, but need $30,000 for another investment or to pay
off debt. You could opt to receive that $30,000 in exchange for
buying the next "x" number of payments, after which the note
would go back to you for the balance of the term. Or as another
option, you could take a lump sum of money now, plus receive
part of the payment each month thereafter. If you're not sure
which option would be better, don't worry. A note buyer can work
with you to determine the best solution for your needs.
Tips for Selling Your Notes
Most mortgage note buyers focus on making the process relatively
simple, easy and fair. They offer competitive pricing, complete
confidentiality and hassle-free closings. However, the note
purchasing business isn't highly regulated, so be sure to locate
and work with a reputable company. Here are some things you
should keep in mind about purchasing notes:
* Up-front fees: There should be no up-front fees. A good note
buyer isn't going to charge you just to provide quotes or check
the buyer's credit.
* Closing and other costs: There should be no points, closing
costs, or other garbage fees at any point in the process. Any
fees are already included in the pay price to you.
* Appraisals: Note buyers normally require you to pay for the
appraisal or the title policy ONLY if the property appraises for
less than the sales price or there are problems with the title
that prevent the purchase. However, these payments should cover
just the buyer's actual costs.
* Credit checks: Be sure that the note buyer checks the credit
of your property buyer up front. Unscrupulous buyers have been
known to quote one price and then lowering it toward the end of
the process. They often use the excuse that the "property
buyer's credit was low". This is a twist on the old "bait and
switch" scam, and it's completely unethical.
* Written Agreement: Ensure that the seller gives you a written
purchase agreement covering the purchase price, contingencies,
etc. Also, don't hesitate to ask questions about anything that
is not clear. Any items that are not spelled out in black and
white are part of the agreement. It's that simple.
Selling real estate notes is easy, and it can be a great way to
generate a lump sum of cash for other uses.
About the author:
David Springer is a consultant for Sovereign Funding Group.
Sovereign Funding Group is an experienced, reputable company
that offers convenient, no-risk services to help you with the
selling of your deferred payments and business financing
including real estate
notes.
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