Sell Private Mortgage Note Inherited Through Estate

You may have recently lost a loved one. This may require the settling of an estate and dividing assets. One of those assets may include a private mortgage note. You might not have planned to sell a private mortgage note in your lifetime, but now that your relative has bequeathed you one or left one behind as part of their estate, you may have to reconsider.

For many possible reasons, selling a private mortgage note that you inherited can be pretty overwhelming. You either want to cash in on that note (to mitigate risk and avoid collecting payments for years to come) or use the proceeds to pay for the funeral, burial, or other debts and accounts your loved one left unpaid.

Key takeaways

By the end of this article, you will know that:

1. You can sell a mortgage note that you have inherited, either in whole or in part.
2. Generally, you won’t be able to do this until the deceased person’s estate has gone through probate, a legal process designed to validate the will and address any debts the deceased had, and to ensure their assets are distributed to the right people.
3. Other than selling the note to an investor, you can also give the payor the opportunity to refinance with a conventional lender, and pay out the note to you with that lender’s money.

Not so fast on that private mortgage note sale

Unless your loved one rolled their assets into a living trust, you will likely need to take their estate through the probate process before you can sell their mortgage note. This process is designed to 1) settle your loved one’s debts, 2) transfer their assets to the proper parties, and 3) see that their will and last wishes are honored.

When you inherit a private mortgage receivable, the probate process is what will clear the property’s title and give you the legal power to actually sell the note, transfer it to a buyer and collect the proceeds from that sale.

You might be able to contact a note buying company and get a quote for your note before this, but once the property’s title is pulled and the buyer sees the asset is still tied up in a deceased person’s estate, the deal will screech to a halt until the probate process has been settled.

Why probate is necessary — and how it works

All in all, the probate process usually takes a few months, though it depends on how complicated the estate is and how many parties are involved along the way.

Generally, you can expect the probate process to look something like this:

1. You’ll file a petition in the probate court where the deceased person lived. The petition is simply the formal presentation of the person’s will to the court.

2. You’ll take inventory of the deceased’s estate, including any property, assets, accounts, investments, or savings they may have had. You will also need to know balances on credit cards, loans, and other debts.

3. The deceased’s assets will be used to pay off any creditors and debts, as well as the costs of funeral expenses. If there is not enough cash to cover these costs, physical assets will be sold off and liquidated to pay the remaining balances.

4. Finally, the remaining assets are transferred to those named as beneficiaries in the will. Once this process is over, the beneficiary can then do with those assets as they please. If a mortgage note is included in these assets, they can collect on the note or sell it to a note buyer and keep the proceeds.

Most of this process will need to be handled by an executor — along with an estate attorney. The executor is the person named in a will to ensure it is fulfilled. It’s often the surviving spouse or a surviving child of the deceased.

How much can you sell a mortgage note for?

If you’ve inherited a note, consider reaching out to a note buyer for an estimate on what your private mortgage may be worth on the open market.

When selling a private mortgage, you have several options. You can sell the entire note and all remaining payments in a full purchase note offer or you have the option of selling a portion of the note, called a partial purchase note offer.

How to sell a private mortgage note

Are you thinking, “How do I sell my private mortgage note?” The good news is the process can be fairly straightforward if you follow the right steps. Whether you’re selling the full note or just a portion, it’s important to move carefully and do proper due diligence to ensure a fair market offer.

Here’s a quick overview of how to sell a private mortgage:

1. Gather your documents: Start by collecting the promissory note, mortgage or deed of trust, closing statement, borrower’s payment history, and any escrow or property appraisal reports. These documents help determine the note’s value and show the buyer that the borrower has a track record of timely payments.
2. Request a quote: Contact a reputable broker or note buying company that specializes in buying mortgage notes. Provide all the necessary details like the payment amount, terms of the note, borrower credit, and property owner information so the note buyer can give you a proper cash offer.
3. Evaluate the offer carefully: Factors like the borrower’s credit score, property condition, future payments, balloon payment terms, and even the home’s value will affect the offer. Pay attention to the details and watch for red flags around closing costs or service fees.
4. Complete due diligence: The note buyer will complete a full review, often including an updated property appraisal, to confirm the home’s value and the security of the note. This protects both you and the buyer.
5. Close the sale: If you accept the offer, the note sale will move to closing. You’ll sign a transfer agreement, often in front of a notary, and the buyer will wire the lump sum payment directly to you. Depending on the transaction structure, escrow services may be used to protect both parties.

Selling a real estate note can be a great way to access immediate cash, avoid the burden of managing collections, and eliminate the risk of borrower nonpayment down the road.

Process for getting a private mortgage note quote

In order to determine what your options are when selling real estate notes it is advised to have the following information:

1. The promissory note

2. A copy of the mortgage, mortgage deed or deed of trust

3. Closing documents

4. The note’s balance and terms, including length, interest rate, etc.

5. Payment history records on the note

Keep in mind that the probate process can take many months or a year in some cases, so there’s a chance your note’s worth may change (or even increase) by the time you can legally sell it. Use your quote only as a guide, and be sure to get a new one once you’ve finished the probate process and have the legal power to sell it to a buyer.

Selling your mortgage note isn’t the only option you have when inheriting a note. You can also give the buyer the chance to refinance with a traditional mortgage lender if their credit is good enough. This would pay off your remaining balance on the note, and transfer maintenance of the loan over to the new lender or servicer.

Still, this isn’t always an option — especially if the borrower has less than perfect credit. Want to know what your inherited mortgage note is worth to real estate note buyers instead? Need more guidance on selling a mortgage loan note that’s been inherited? Contact Amerinote Xchange today.

The bottom line

You can sell a mortgage note that you inherited, but not before the probate process clears the deceased person’s assets and hands them over to the proper inheritors. You can sell all or part of the mortgage note. Be sure you are aware of the tax implications of both these types of sales.

Frequently Asked Questions

What should note holders know before selling a note?

Before selling a note, note holders should review the loan agreement, payment history, and the value of your note. Understanding the fair market value and the attractiveness of the asset can help you negotiate a better price with any buyer or investor interested in buying mortgage notes.

How does selling mortgage notes help avoid tedious management?

Selling mortgage notes allows you to avoid the tedious management of collecting payments, monitoring borrower credit, and handling loan servicing. Instead, you get a lump sum from the sale, freeing you from the burden of lending the money and overseeing the real estate note over time.

Can I sell a trust deed along with the note?

Yes, if notes are secured by a trust deed, selling a note typically includes transferring the trust deed rights as well. The new note holder will then have legal rights to foreclose if necessary. It’s crucial that the paperwork matches the current market standards to ensure a smooth transfer.

Why consider selling my note if I need cash?

If you need cash, selling your note offers a fast solution. Since a private mortgage note is often a short-term investment, selling it allows you to access the lump sum now rather than waiting for years of future payments, especially if you are considering selling in a rising rate environment.