Are you in the process of exploring options to find a trusted company that will buy your mortgage note for top dollar? Do you need to generate cash for a personal or business need? Selling notes can be tricky, but we want to make the process as easy as possible.
Amerinote Xchange is a private company that will buy mortgage notes in all 50 states. We specialize in the purchase of residential real estate, commercial real estate, and non-performing real estate notes nationwide.
Interest rates are at historic lows which this country has never seen before. This means that you, as a note seller, are in the very best position to sell to a company specializing in buying mortgage notes.
The reason for this statement is simply due to the fact that interest rates are interconnected to the lending realm. In order for mortgage note buyers to stay in business and consistently buy new mortgage notes, they must constantly borrow money from (specialty) lenders to keep their doors open.
The lower the interest rate the buyers have to pay for their capital to buy mortgage notes, the higher the offer is to the party selling the debt instrument.
What Are the Options When a Company Buys My Mortgage Note?
There is a wide range of options available to sellers who decide to take their debt instrument to market:
- Full Purchase Buy-Out: A full purchase buy-out is when a seller of a mortgage asset sells the entire note, receives the most money possible up-front (determined by the characteristics of the asset), and then has no further risk or servicing responsibility whatsoever. This then leaves the seller to move on with their financial goals.
- Partial Purchase Option: A partial purchase option is the purchase of a portion of the note with regards to the payment stream or possibly the balloon payment (if any). For instance, Amerinote Xchange can purchase 2 years, 3 years or even 15 years of payments on the asset for sale. Once we collect the agreed amount of payments, the remaining balance, principal and interest revert back to the original seller, which occurs automatically and on our dime. While sellers would receive a smaller amount of money up-front, they would receive much more money over the life of the loan due to the interest collected.
- Split Buy-Out: A Split Buy-Out is the entire purchase of the note in 2 or more lump sum stages. It usually consists of a lump sum at the closing of the sale and then scheduled lump sum payments at future dates until the sale is complete. A note sale is usually broken up this way for many reasons, although the most common is due to poor performance of the borrower and/or property market securing the asset. This option is also a winner for sellers looking to minimize the tax liability exposure in any one given fiscal year.
- Reverse Partial Buy-Out: A reverse partial buy-out is the purchase of a portion of a note, although the investor does not start collecting until a later date. For instance, a seller will receive a lump sum of cash at the closing of the sale and then continue to collect payments on said asset for a set amount of time. This will allow the seller to benefit from the interest received on the payments, as well as the lump sum they received previously at the closing of the transaction. At an agreed-upon future date, the investor will then start collecting on the payments typically through to maturity. In some very rare cases, the note will revert back to the original seller and a further date down the road, once the investor has concluded their allotted portion of the collection of said payments.
What is the Market Value of My Real Estate Note?
How is market value determined on a real estate receivable being sold to a note investor on the secondary mortgage market? This is a question that comes up many times daily in this industry. There are many primary and secondary variables that come into play when determining the value of a real estate receivable for sale. Below is a list of items that sellers should be aware of when taking their asset(s) to market:
- Down Payment (primary variable): This piece of information is at the top of the list for investors when calculating the present-day value of a promissory note for sale. Not only does this variable determine how much money one would receive, but also it identifies if the seller-financed loan can even be sold at all. The more money you collect as a down payment when you sell a property and create a promissory note, the more likely you will see interest in selling said asset down the road – plain and simple. The down payment determines how much equity the borrower has in the property (referred to as Loan to Value or LTV), thus determining how secure that loan would be as an investment in an investor’s portfolio.
- Credit Score of Borrower (primary variable): Ninety percent of the time, credit score comes into play when pricing a note out for purchase. The higher the credit score of the borrower making payments, the higher the chances the seller will have, pertaining to many offers, when selling said asset to an investor. It would be wise to review the credit of the person purchasing a property from you, if you plan on creating a mortgage loan to sell to an investor. Many sellers make the mistake of not pulling credit up front. Months or even years after the loan is created, they found out that the person making payments has credit so bad that the note cannot even be sold at all.
- Loan Terms and Amortization (primary variable): The loan terms and the amortization are also key factors in figuring out what your asset will sell for when taken to market. The long and short of it is as follows:
- Interest Rate – Interest rate is a key mechanism of determining how much money one would receive if/when they sell a real estate note to an investor. The interest rate should reflect the risk that a seller is taking by seller-financing the property in the first place. The higher the interest rate, the higher the lump sum payment will be when the asset is sold.
- Amortization / Pay-Back Period – This is another MAJOR factor when determining the amount of money one would receive when selling notes to an investor. The longer you stretch the payments over time, the less money you will receive when selling a seller-financed loan. The shorter the payback period, the more money you will receive. Just to clarify, a 30-year payback period (with no balloon) is not great for note offers. It is actually the worst thing you can do if you are trying to get top dollar for your asset. A 10-year payback period (with no balloon) is the best thing you can do if you are planning on selling the note you create to an investor. It is always recommended that you try to stay between a 10-year and 15-year payback period (or amortization) in order to receive top dollar for the asset you are selling.
- Balloon Payments – Balloon payments are viewed by some investors as a good thing and by others as too risky to buy. With the new regulation that affects balloon payments in seller-financed notes (Dodd-Frank Wall Street Reform Act), it is suggested that balloon payments be avoided altogether. If you want to include a balloon payment, you will have to hire a licensed mortgage originator within the state where the property is located. We do not mind balloon payments, as they do not make a huge difference in pricing when we buy mortgage notes.
- Personal Guarantees (primary variable ONLY if borrower is a corporation): A personal guarantee only comes into play if you are selling your property (and creating a note) to a corporation that is not publicly traded on the stock market. If the corporation is a private S-Corp, C-Corp, LLC, LP or Trust, it is recommended to get a written personal guarantee from one of the officers of the company to ensure that payments will continually be made if the corporation is no longer able to make the payment. Not getting a personal guarantee when selling to a corporation borrower can cause you to receive tens of thousands of dollars less in the offer you receive. It is that important! Again, this is ONLY if you are going to collect payments from a private corporation. A personal guarantee is not needed if the borrower is a private individual.
- Payment History and Seasoning of Loan (primary variable): In order to receive top dollar for your mortgage loan, at least 6-12 payments must have been collected. We can still buy the loan if there are less than 6 months of payments made, but you may not receive absolute top dollar. It is also suggested that you collect all payments from the borrower by check, direct deposit or money order. If you plan on not depositing checks or money orders into your bank account, always, always make photocopies for your records. Payment history is usually the backbone to a loan sale due to poor borrower credit or lack of equity (or both). Always make copies. It is a good habit to get into if you are acting as a lender on a real estate receivable.
- Record Keeping (secondary variable): Always treat your original mortgage documents as cash. The reason why is that they are exactly that – an IOU. If you lose or misplace your original promissory note, you may risk not being able to sell the note at all, as most states do not include them in the recorded databases. The document is equivalent to the pink slip of an automobile. If you are trying to sell a car with no pink slip, the new owner cannot legally take possession of it. The same rings true to mortgage note assignments. The cleaner the records you keep, the easier your sale will go when selling your loan on the open market.
- Using a Title Company to Close Your Property Sale (secondary variable): When selling your property and creating a note, it is always wise to use a title company or an attorney’s office to ensure the proper protocol is taken when transferring real estate to a borrower. The title company can insure clear title via a title insurance policy, which is very important. The title company can also take care of the language in the promissory note and security instrument according to the laws of your specific state. Trying to save a buck by cutting this corner will ALWAYS bite you in the end. It is NOT worth it and it makes for a sloppy loan sale down the road. Also, when cash exchanges hands surrounding the down payment, everything can be tallied and viewed on a HUD-1 or Settlement Statement, which proves that you collected money on the down payment.
How do I know if I found a good investor to buy mortgage notes?
There are many ways to determine if you are dealing with a “real” and professional mortgage note buyer who will treat you fairly and give you the best price for your note. Here are some things to keep in mind:
Professionalism: Does the buyer you contacted seem professional? Do they compose themselves in a professional manner? Would you trust this person’s ability to assist you in getting you the monies needed when selling your asset?
Direct Note Buyer VS Note Broker: Is the company or person you are dealing with a direct note purchaser or a broker? Working with a broker is not a bad thing, as there are many who are worth their weight in gold. That being said, working with a direct buyer means you will probably save money on the broker fee that could range between $2,500 and $10,000, depending on the note in question. Working with a direct buyer will ensure that you get the best offer possible – ALWAYS. Working with a GOOD broker means you will have to do less work looking for a quote. Many note sellers prefer working with a direct buyer like the team here at Amerinote Xchange.
Accreditation: Does the company you are working with have a Better Business Bureau Accreditation? Amerinote Xchange has an A+ rating with the BBB. If they do not have one, move on.
Gut Feeling: Go with your gut. Do you feel the company is on the up-and-up? Does it sound like they know what they are talking about? If your gut tells you otherwise, hightail it out of there.
If you’re interested in selling notes, you have come to the right place. As one of the leading mortgage note buying firms in the country, Amerinote Xchange has over a decade of experience in the note-buying business and will see that you receive the best possible sum for your note. Contact us today for a free quote at 1-800-698-3650.