Selling Real Estate Notes

Selling real estate notes is usualy about raising money quickly. Real estate notes are just loan documents created when people help finance the sale of a house or investment property. They could be mortgage notes, or land-contracts or contracts-for-sale. The important point is that the buyer is making payments, and the seller or holder of the note wants cash instead.

It's possible to sell the entire contract, or even a certain number of payments. In either case, the original borrower will have the same terms and payments. He or she will just start making those payments to whoever purchases the note.

Selling Your Note

Selling real estate notes can be an intimidating process. You may already know you won't get the full face value for your note, but there may be other fees you have to pay too. How can you tell if the buyer is reputable? What's the normal discount on a note and why? Here are some guidelines:

1. Don't pay up front fees. If they ask for them, go elsewhere. They might ask for a fee to check the borrowers credit, but you can find many note buyers who will check your buyers credit and give you a quote without charging you.

2. Don't pay other fees, with a couple exceptions. Buyers figure their expenses before making an offer, so there are only a couple fees you may have to pay. You might have to pay for the title policy, but only if there are problems with the title that prevent purchase. If the property appraises at less than the sales price, you may have to pay for the appraisal. Only reimburse the note buyer for the actual cost in these cases.

3. Always get a written purchase agreement with the purchase price and contingencies, and ask questions about anything that isn't clear.

4. A note buyer should check your property buyers credit upfront. Unethical note buyers sometimes quote one price initially, and then lower it later, with the excuse that the property buyer's credit score is low. Called "bait and switch," this isn't ethical.

5. Get several quotes. You'll have to provide information like the type of property, sale price, payment amounts, current balance, etc. Note buyers should respond within a day or two.

6. Once you agree to an offer, you'll have to send copies of the Mortgage or Deed of Trust, the Note, the closing or Settlement Statement, and the Title Policy. If there hasn't been a recent appraisal, they'll usually arrange that (and again, they'll pay unless it comes in below the sales price).

7. Processing time can vary, so ask. Usually, once you agree to an offer and send the documents (if it is done by mail), you'll receive a certified check or electronic transfer to your account within two to three weeks.

Selling Real Estate Notes For Top Dollar

"Seasoned" notes sell for a higher price. These are notes that have had payments made on them for a while (on time). Note buyers will sometimes buy new or "unseasoned" notes, but if you can wait until six payments have been made, you're likely to get a much better price.

Notes with a balloon payment get a higher price. Notes with higher interest rates and/or shorter loan periods get more money too. These are things to consider before you sell the house, if you think you might sell the note in the future.

You can sell second mortgage notes, and other second-place real estate notes too. Note buyers will look at these differently though. First and second place notes can't add up to much more than 70% of the value of the property, or you'll be looking at a steep discount

As for discounts, by the way, they will almost always seem steep. It's common to get 20% to 30% less than the current balance on the note. I'll let the note buyer explain why. Suffice it to say, they have to make money on the deal too, and you should be sure you have a good use for that cash before selling those real estate notes.