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Home > Sell My Note – Selling Mortgage Notes Online
Selling a mortgage note is a streamlined and straightforward process. A person or entity collecting loan payments has the ability to sell a mortgage note for a lump sum of cash today, instead of holding the loan long-term over many years. You can choose to sell all, or just a portion of your note, depending on your capital needs. We will take a deep dive into the sale process as well as fully explore all options and pricing factors below.
A mortgage note is a legal instrument that typically outlines a promise to pay, or a loan, by one party to another. This instrument is usually secured by real estate and will contain information describing: loan amount, interest rate, payback period among other relevant items.
Legal Significance of Mortgage Notes
A mortgage note is a legally binding contract that defines the repayment terms. Usually, the following terms are defined in the contract:
Total mortgage loan amount
Payment frequency and method (e.g. monthly and bank transfer)
Interest rate (e.g. fixed or adjustable)
Potential penalties (e.g. late payment fees)
Why Sell Your Mortgage Note?
Many lenders have various reasons to sell a mortgage they own on the secondary market. Their motivations are certainly different but the end result is one in the same.
For a private corporation or individual lender that holds a mortgage note, the reasons for selling usually fall under one or more of these categories:
To alleviate a imminent financial necessity
To recycle capital into a new investment with a higher rate of return
To relieve collection concerns and chasing payments from borrowers
Receive medicaid approval for senior living facility
Lifestyle change such as a new home or luxury purchase
To mitigate against bankruptcy or foreclosure concerns that may arise
To exit a capital partner out of a business relationship
How to Sell a Mortgage Note
Here are the simple steps to selling a mortgage note
Gather all of the details on the mortgage note you want to sell
Provide the details to the buying entity for a free quote
Decide if the amount offered is right for you and proceed with the sale
The buying company will perform the diligence and underwriting process
The buying entity will fund the transaction the note seller will receive their cash
I want to sell my mortgage note but where do I start? The process is actually very simple for the note seller. Before you begin the note sale process, make sure you have all of the necessary information to receive a mortgage note quote. This will include the property address, the loan amount, the interest rate, the payback period, and the name of the property owner. If you are not sure, or you are missing any information pertaining to the note for sale, please feel free to contact us and speak to a live person to answer your questions directly.
This entire process of selling a mortgage note will take anywhere from 15 days to 30 days depending on the state/property location, the availability of the local appraisers, the availability of the title companies providing the title search, etc. We pay for ALL costs associated with the purchase of your mortgage asset, including appraisal, BPO, and title fees.
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 – When selling real estate notes 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 the 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.
Sale Options When Selling a Mortgage Loan
How to sell mortgages? 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.
How to Find the Right Buyer
Now you know the steps of selling your mortgage note, but you may still be left wondering how to sell my real estate note for cash and find the best buyer.
It’s enormously important to gauge different buyers’ offers for your note. After all, the value of a mortgage isn’t static; it can change from day to day alongside fluctuating national interest rates.
On top of that, you should ensure the mortgage note-buying company you work with has certain qualities that will make you feel at ease offloading your note.
The first and perhaps most important quality should be trustworthiness. No one wants to become involved with an organization that seems to be trying to scam them out of something, be it money or an opportunity. A good mortgage note-buying company should offer you a quote for your note without trying to get you to sign something first. In this same vein, remember that a reputable mortgage note company will examine the mortgage note itself to determine its value; if a company begins looking at you, the seller, and your own credit history to judge the value of your note, that company is probably not reliable. The buyer’s credit score informed the terms of the note. Your own background should be irrelevant.
Another point to keep in mind is that note buyers typically do not buy mortgage notes at full price, or 100 cents on the dollar. Companies incur their own costs in purchasing your note, such as appraising your property and searching its title. They will want to recoup these costs somewhere, and the easiest way is by discounting the price of your mortgage note. However, beware of companies that attempt to lowball you on your note.
What Do Investors Look For When Buying Real Estate Notes?
All mortgage buyers have their own investment appetite, which is decided by the investor’s risk tolerance. The secondary mortgage market does not have a set note purchase criteria that all note investors follow.
Depending on if you are buying performing mortgage notes or non-performing mortgage notes will decide what a mortgage note buyer will consider when buying a real estate note for their portfolio.
On performing notes, most mortgage note buyers are interested in three major items:
On non-performing notes, most buyers look for:
Current Property (Market) Value
Foreclosure Procedures within Property State
Borrower’s Last Payment Received/Applied
This is something that all well-informed noteholders should know when selling a mortgage note. It all comes down to one major thing for a note buyer – RISK! This is something that a seller should keep in mind when they decide to sell mortgage loans. Risk of non-payment, risk of borrower default, risk, risk, risk. No matter who you decided to sell mortgage notes, any and all (smart) mortgage note buyers will first look to the asset’s down payment or equity in the real estate.
The equity in the collateral determines how sound that loan would be as an investment. The equity determines the loan’s security level. The higher the risk, the less the loan is worth to a note buyer. A good rule of thumb is: the less money one collects as a down payment, the less money the note is worth to a note buyer on the secondary market. The reason being a high loan-to-value (or LTV).
Just to clarify, a poor down payment is 0% to 9%, a decent down payment is 10% to 14%, a good down payment is 15% to 20%, a great down payment is 21%-30% and an excellent down payment is 31% or more.
The very next factor all note buyers look at is the borrower’s credit score (Equifax Score, Trans-Union Score, and Experian Score, also called a Tri-Merger).
Meanwhile, a poor credit score is 600 or lower, a decent score is 601 to 675, a good score is 676 to 720, a great score is 720 to 780 and an excellent score is 780 or higher.
Most note buyers will only go down to a 600 credit score whereas we will go as low as a 500 FICO Middle-Score. After the credit factor, the rest of the note’s calculation will really vary between the buyers.
Here at AX, our note purchase criteria will also included but not be limited to: the loan’s seasoning (payments received, payments owed), property location/ RE market trends, loan payment records, relationship between borrower and seller, loan’s performance, etc. To begin the note buying process online, click here for a free quote.
What Happens After a Mortgage is Sold?
When selling a note on the secondary market there two are perspectives that need to be addressed. The first is the perspective of the borrower, or the party making the mortgage payment. The second is the perspective of the new lender that is going to be receiving the monthly payments. Just to be clear, the borrower owns the property, and the lender owns the mortgage debt.
Let’s explore both.
The Loan Sale First things first. A lender loans money to a borrower to finance a property. Then the borrower has to make mortgage payments to the lender. The original lender decides to sell the loan to another lender for cash. The loan is sold from one lender to another. A mortgage or deed of trust assignment (depending on the state) is filed within public records and money exchanges hands between the original lender and new lender. The loan sale is complete, and the original lender is out of the picture. The new lender takes over.
The New Lender’s Perspective The new lender will typically send an “Introduction Letter” in the mail to the borrower letting them know that their debt has been sold. It will address that the borrower should start making payments to the new lender (where, when, and how).
The Borrower’s Perspective The borrower receives the “Introduction Letter” from the new lender. Now the borrower may be panicking, and they are saying to themselves “the lender is selling my mortgage and the terms are going to drastically change”.
When a loan is sold from one lender to another, nothing changes for the borrower whatsoever other than where and how the borrower makes the mortgage payment. The new lender must adhere to the same exact terms and language in the original mortgage contract that was agreed upon. No lender can come in and change anything without all parties agreeing to the change. Nor, is that desired by the new lender. A lender usually buys a mortgage note because they typically are looking to simply collect the monthly payment as-is, because they like the loan structure.
Why Choose Us for Selling Mortgage Notes?
If you have sold your residential or commercial property and you or your client owner-financed the mortgage and you’re wondering how to sell mortgage notes, AX can offer a sound and painless exit strategy if you’re tired of acting as the bank.
AX is the fastest growing residential and commercial mortgage note buyer in the country today. We can fund the purchase of your mortgage note in as little as 15 business days. When it comes to selling a mortgage note on the secondary mortgage market, the chances of successfully reaching your financial goals and securing the highest payout become greatly increased when using the right direct mortgage note buyers and funding source. As one of the fastest-growing mortgage note buying companies, we pride ourselves on the absolute fastest turnaround to receiving cash for your mortgage note and the most aggressive offers on your asset.
If you have an existing promissory mortgage note that you want to sell now, simply contact us to get started today:
Tara Mastroeni is a real estate and personal finance writer. Her work has been published on websites such as Forbes Advisor, Business Insider, and The Motley Fool. See full bio.
Molly Corson is the Co-Founder and Operations Director at Amerinote Xchange. Molly's diversified background and experience lies in the areas marketing ad-tech, team-building, operations-management, sales and strategic relations management. Molly has a BA degree from Temple University. See full bio.
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Abby is the co-founder and Chief Acquisitions Officer. See full bio.