If you previously took up a loan, you should know what a mortgage note is. Mortgage notes, in a nutshell, are legal documents that specifically outline the loan terms used to acquire the property financed by the loan.
In other words, it’s a written promise to repay a loan over its term — typically 15 to 30 years plus interest. If you comb through the fine print in your mortgage note, you should see your loan information, such as:
-Terms and conditions.
The bottom part of the note should affix the signature of the borrower and lender, essentially binding both parties in an agreement. The property you financed should become security for the mortgage note.
So if you default on the home loan, your bank or lender can foreclose the property for listing and recover the money you owe. But you get full property ownership if you paid your mortgage note off. It’s that simple.
What is a real estate note?
On the other hand, a real estate note is like a mortgage note, except not being secured by a mortgage or deed of trust. In other words, if your note security is the property you want to purchase, it’s a mortgage note. But if the property or a mortgage does not secure it, it’s only a real estate note.
Can you sell a real estate note?
Yes, you can sell a real estate note, which has many benefits for the lender and buyer. Selling a note to an investor, a company, or a third party is called note buying or note investing.
If you want to venture into note buying, you sell your real estate note to a third party for a lump sum payment. But remember that the payment will usually be lower than the principal amount.
After sealing the deal, the new real estate note owner will collect payments from the loan borrower and earn whatever interest the debt incurs.
Selling a real estate loan brings attractive options and opportunities for both the owner and the buyer. If you’re a seller, you get a large sum of cash out of it to free yourself from the debt — especially if it takes more than a few decades to fulfill.
For the buyer, it offers a steady inflow of income over a long period and a surefire chance of earning a positive return on their investment.
Note buying can be an attractive option for both the buyer and the seller. For the seller, it can provide a lump sum of cash and allow them to move on from the debt. For the buyer, it can offer a steady stream of income and the opportunity to earn a return on their investment.
How to sell a real estate note?
If you're looking to sell a real estate note, several key factors must be considered to ensure a successful transaction.
1. Deciding to sell your note
The note-buying process starts by deciding to sell your existing real estate note. Some lenders can quickly transform mortgage notes into cold hard cash whenever needed.
But others intend to sell the note immediately and have used seller-backed financing to grab a property quickly. Here are several red-hot reasons why you should sell your real estate note:
-Diversify your properties.
-Divide a real estate.
-Free yourself from managing the real estate note.
-Regulate your number of assets so that you can apply for retirement benefits.
-Sell your dream business and earn a large sum out of it.
Most will begin note-buying by scouring the market and looking for valuable information to decide whether they can sell their real estate note fast. There are tons of note types eligible for sale, including the following:
-Real estate and mortgage notes.
-Seller-financed mortgage notes.
-Contracts for deed.
You can liquidate the assets in the said notes for a large lump sum.
2. Choosing whether to sell in full or partial payments
You can choose between selling your mortgage note and selling the whole asset or a portion.
The expression “selling in full” means giving up the entire asset and full ownership rights for a large one-time payment. People will choose this if they want to divide an estate or if seller-based financing is the only way to sell the property.
Note owners can also sell a portion of the note if they only need capital and want to keep the remaining ongoing payment stream for their benefit. After selling a portion of the note, the agreed percentage will go to the buying entity, while the rest of the payment percentage will go back to the note owner.
3. Choosing the perfect note-purchasing entity
The next step in selling your real estate note is finding the ideal note-buying company or entity. We always recommend checking if the buyer can provide excellent customer service and expertise during the process.
Besides, always check how much money you can get for your note. That’s all that matters.
4. Getting your purchase quote
After you find a potential note buyer and get your quote, we suggest combing through the fine print and understanding how the buyer arrived at their price offer.
The following factors will affect how much your real estate note is worth:
-Property Equity: The more equity you invest in your property, the more likely you can pay off the -loan.
-Your credit score: The higher your credit score is, the more note buyers see you as a low-risk seller.
-Payment history: If you can prove a positive payment history on your real estate note, you can sell it at a higher value and get more potential buyers.
Once you agree with the quote, you can sign the contract, attach all required documents, and the rest is in the hands of your mortgage broker or note buyer.
5. Evaluating your property
You’ve fulfilled your due diligence and are only a few steps away from sealing the deal.
Your note buyer should do their part and inspect the property, check its property value through a real estate broker, or do a drive-by appraisal.
While the appraisal takes care of the property’s physical side, your note buyer will also check the legal aspect of the asset with a title search. The title company will check if the asset has any claims, unpaid taxes, easement rights, and other legal statutes that may affect or hinder the note agreement and future ownership.
You need a clean title to sell the real estate note with peace of mind.
6. Seal the deal, get your money
Once everything comes back clean and expected, both parties will proceed with closing the note sale and inform all concerned parties about the sale.
You must inform the property owner that you’ve sold the mortgage note to a new owner. Let them know that the monthly amortization will remain the same, but future payments will be sent to the buyer’s account.
Finally, both parties should visit their local title company to close the note sale and sign the final paperwork. The closing paperwork certifies the sale as official and formally transfers the note ownership to the buyer. Your buyer should wire the payment directly to your bank account on the same day.
What are the benefits of selling a real estate note?
Mortgage note holders sell their notes for a plethora of reasons. Most of which includes leveraging the benefits such as:
If you can’t find the information above, kindly check them on your promissory note and deed of trust.
How can I find the right real estate note buyer?
Browsing the market for potential note buyers can be daunting. But with the proper knowledge, market condition, and mortgage partner, you can quickly identify potential buyers and up your chances of spotting the perfect match. Here are surefire ways to find the perfect buyer for your note:
Step 1: Determine and verify your note’s market value
Knowing how much your note is worth will help you find interested buyers. We recommend checking all relevant points, such as the remaining balance, interest rate, and the borrower’s creditworthiness.
Step 2: Look for potential buyers
After knowing how much your note is worth, it’s time to head out and scout for potential note buyers. These can be individuals, entities, companies, and investors who buy notes for a living.
Step 3: Reach out to potential buyers
After selecting a potential buyer to pitch your real estate note, you should call them or pay a visit and pitch your real estate note, including all necessary information. Inform them about the note’s balance, interest rate, and payment schedule.
Step 4: Negotiate terms
Once your buyers respond with their offers, scour through each one, review each point, and negotiate the payment terms so you don’t lose the high ground.
Step 5: Seal the deal
Once everything has been reviewed, discussed, and agreed upon, it’s time to work with a real estate attorney or title company to close the sale and transfer the ownership to your buyer.
Evaluating your asset value, preparing the documents, looking for buyers, and negotiating with big entities can be daunting for most sellers. That’s where an experienced and qualified mortgage broker comes into the picture.
Selling a real estate note can benefit individuals who want to receive a lump sum of cash quickly, instead of waiting for the entire note term to receive payments. It can also provide liquidity for investments, help with debt reduction or allow for diversification of one's portfolio.
Evaluating the property and considering factors such as property equity, credit score, and payment history can also help you get the best price for the note.
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