Wondering how this whole note buying process works? Get answers to frequently asked questions including:
Why Would I Sell My Mortgage Note?
How Do Note Buyers Decide on a Value?
What Can I Do to Make My Note Worth More?
Here are straight forward answers to the most common questions on selling mortgage notes. We also invite you to visit our learning center filled with helpful articles and tips for creating and selling trust deeds, land contracts, and mortgage notes.
Why Owner Financing?
Owner financing is on the rise with more sellers agreeing to accept payments from buyers. There are many reasons people agree to take back a note, deed of trust, mortgage or contract including:
- Quick sale of the property
- Monthly income from the note
- No hassles of bank financing (fees, delays, and strict underwriting)
- More qualified buyers
- Property is hard to finance
Why would I sell my mortgage note?
Circumstances change and many sellers would prefer cash today rather than small payments that trickle in each month. Here are just a few reasons people have sold their note payments for cash:
- Retirement
- Taxes
- Investment Opportunity
- Expensive Medical Care
- Vacation
- College Tuition
- Unexpected Financial Changes
- Peace of Mind – no more worrying if the buyer is going to make late payments or having to foreclose
- Accounting headaches, IRS regulations, paperwork hassles and the list goes on…
What is a note appraisal?
A note appraisal reflects the current market value of your payments similar to what a real estate appraisal provides for real property. It shows what your future payments are worth in cash dollars today and is sometimes referred to as a “note analysis” or “quote”.
We recommend you have your note evaluated once a year as pricing may change based on market conditions
How do I maintain the value of my note?
Many of the items that affect the value of your note were determined at the time the property was sold. However, there are three things that you can do now to make your note more valuable:
- keep good records and copies of the payments received,
- obtain a copy of the property insurance policy from the buyer each year; and
- verify the property taxes are paid when they come due (usually twice a year).
This will help maintain the value of your important asset and avoid any unpleasant surprises.
Can I sell all or part of my note?
We can purchase all or part of your remaining payments. Selling part of the payments allows you to receive a lump sum of cash up front, then payments when the note reverts back to you. We can even pay cash for a portion of each monthly payment.
Many people elect to sell just enough payments to meet their cash needs today and keep some of the future payments as an investment or nest egg. Always ask for an option that meets your needs.
How is the value of a note determined?
The value of a note is affected by the down payment, interest rate, payment amount, and term as well as the buyer’s credit rating and payment history. The type, condition, and value of the property also impact the value of your note.
The time value of money, which makes payments due now more valuable than payments due in 20 to 30 years, also plays a role in the evaluation process. Generally, due to inflation, money in your pocket today is worth more now than later. All of these elements will be taken into consideration in determining the current value of your note.
What Is an Example of a Note Purchase?
The following is an example of some different options available to a note holder. Your note’s value may be higher or lower depending upon property type, terms and payor information. Every note, property and payor is unique and is evaluated to give you the highest possible price and best possible options available to you for your situation.
Example Of A $90,000 Note That a Seller is Receiving Payments On
| Sale Price $95,000
Down Payment $5,000 1st Mortgage $90,000 Current Balance $84,257 Loan To Value 89% ($84,257/$95,000) |
· $90,000 Face Value Note
· 10% Interest Rate · 15 Year Term (180 Payments) · $967.14 Monthly Payments 24 payments have been made. Current Balance is $84.257.19 |
Some Of The Options Available To The Note Holder
- DO NOTHING. Continue receiving the remaining 156 monthly payments of $967.14.
- FULL SALE. Sell the entire note now.
NOTE HOLDER Receives: $76,233.18 CASH NOW
- PARTIAL SALE-FRONT END PAYMENTS. Sell the next 5 years of payments (60 payments). Then receive the last 96 payments.
NOTE HOLDER Receives: $40,653.34 CASH NOW
plus $63.736.86 Loan Balance in 5 years
$104,390.20 Total Cash to Note Holder
Detailed Explanation of Above Options
Full Sale
When the entire note is sold, it is always sold at a “discount” off the current principal balance of the note. The reason for this is that the face interest rate of the note is seldom as high as the market yield required in the secondary mortgage money market. In the example, the discount is $8,024.01 ($84,257.19 minus $76,233.18) assuming the secondary mortgage money market yield is 12%. The discount could be more or less depending on the current yield requirements in the secondary mortgage money market.
Partial Sale— Front End Payments
Partial sales are very attractive from the point of view of a note holder because the note holder does not have to take a big discount. The main reason for the discount being so large ($8,024.01 in the example) is that the payments due in the distant future are worth much less in today’s dollars than the payments that are due soon.
In a full sale, the note holder is selling all the payments, and not getting much for the ones at the end of the 15 year term—thus the large discount. In a partial sale where the front-end or near term payments are sold, most of the payment is interest. This means that the note holder gets a sizable amount of cash now ($40,653.34 in the example) and when the note holder gets the note back after 60 payments, the balance of the note is still fairly high ($63,736.86 in the example). The note holder then gets the remaining 96 payments of $967.14.
A partial sale of the front-end payments is like having your cake and eating it, too. You get a sizable chunk of cash now, and when you get the note back, it has a high remaining principal balance and lots of payments left to collect.
In the example, the cash the note holder receives now plus the remaining loan balance the note holder receives in 5 years is more than $20,000 higher than the current principal balance of the note. In many cases, note holders prefer this type of an arrangement rather than selling the entire note for a large discount off the current principal balance.
How will selling my note affect the payer?
The payer experiences no change in the way the payments are structured. The only change will be the address where the payments are mailed.
How do I get started?
The first step is to obtain a quote using our online form or by calling us at 310-750-3222. We also request copies of the documents relating to your transaction:
- Note and Mortgage (Deed of Trust or Contract)
- Closing statement
- Buyer information
- Pay history and current balance
- Previous title insurance policy
- Current hazard insurance policy
We will then provide you an offer subject to the standard title, appraisal, and buyer’s credit review. Once under contract, you will receive your cash as soon as all of the documentation can be obtained. This typically takes as little as 10-15 working days.
How will I be paid if I decide to sell my note?
The purchase price is paid in guaranteed funds (cashier’s check or wire transfer) upon receipt of the final transfer package and original documents.
We are happy to wire funds to the title company so you may exchange your original documents for the proceeds, assuring the safe and secure transfer of your valuable asset.
Why should I work with Birch Property Solutions?
We pride ourselves on:
- Quick closings
- Excellent customer service
- Competitive quotes
- Providing customized options
- Strong financial backing
- Flexibility on all note purchases
- Confidentiality with all transactions
- Credibility in the industry
At Birch Property Solutions we provide top rate service combined with the best prices available.
We invite you to contact us if we can assist you!