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How Do I Sell My Note on My House?

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How Do I Sell My Note on My House? | Debexpert
Key takeaways:
To sell the note on your house, you typically engage with a note purchasing company or investor, providing them details about the note's terms, payment history, and property value. After evaluating the note, they'll offer a lump sum amount, and upon agreement, legal documents are prepared to transfer the note's ownership.

Holding real estate notes on a property signifies that you, as the borrower, possess a mortgage. This makes you the recipient of repayment instead of a traditional bank. If you've been contemplating converting your mortgage notes into a lump sum of immediate cash, or adjusting your loan amount or loan payments to free up funds, you've come to the right place. Here's a thorough step-by-step guide to assist you in navigating the process of buying from a note seller at the right price.

Step One: Making the Decision to Sell

The initial step in this process is determining whether or not to sell your mortgage notes, also known as real estate notes. This decision can involve evaluating performing notes and considering options for buying. Mortgage loan notes can be swiftly converted into cash when the borrower needs to manage debt payments. For some investors, seller-backed financing might have been a strategy to quickly acquire a property, intending to sell the mortgage notes to a buyer later on. This could be a method to repay the loan swiftly.

There are several reasons to consider selling, such as:

  • Dividing an estate
  • Easing the burden of note management
  • Managing assets to qualify for retirement benefits
  • Freeing up capital for different investments
  • Selling your business

Before deciding to sell, familiarize yourself with the process of buying and selling a real estate mortgage note, understand how the worth of your loan note is determined, and what to look for in a mortgage note buyer. This preparation will aid in smoothly negotiating the sale of your mortgage notes when you, as a buyer, start requesting loan quotes to sell.

Step Two: Full or Partial Sale - The Choice is Yours

Mortgage notes in the real estate market can be sold in two ways: selling the entire loan note (full sale) or selling a part of the payments (partial sale) to a buyer. Both methods, whether it's handling a loan or a promissory note, result in exchanging long-term mortgage notes payments for a private mortgage note lump sum, but the size of that lump sum depends on your choice.

A full real estate sale means you're liquidating the entire asset and exchanging your full-ownership rights for a one-time cash payout, effectively finalizing your payments and closing out the loan. This method, involving a mortgage note, is often chosen in cases of estate division or when seller-based financing, like a loan, is the only viable way to sell a property. Regular payments to a note buyer can make this an attractive option. On the other hand, a partial sale of your mortgage note is ideal if you need capital from loan payments but wish to retain some of your ongoing payment stream from the sell. This implies a fraction of the real estate payments goes to the buyer, while the remainder is directed to the mortgage note buying company.

It's crucial for every buyer in the real estate market to explore your options, as every mortgage note you're planning to sell is unique. For instance, selling only a portion of your mortgage note payments (known as a partial) in the real estate market may be more beneficial for you and may offer a higher rate of return to the note buyer. This is especially true when dealing with notes.

Step Three: Choosing the Right Note Purchasing Company

Choosing a mortgage note buying company for selling your mortgage notes is the next step. The company you choose determines the level of customer service and expertise you'll have access to during the process, as well as the amount of money you can get for your note.

When selecting a mortgage note purchasing company to sell your notes, ensure that they check the credit of the payor/buyer upfront. This is to avoid any sudden drop in purchase price quotes due to unforeseen credit issues. Ensure that there are no upfront fees to the note buyer as these are typically already included in the mortgage note purchase price. This is crucial for maintaining the note yield, especially when dealing with notes transactions.

Step Four: Understanding Your Quote

Upon receiving your quote, it's advisable to scrutinize it to understand how the amount was derived. Factors that significantly influence the quote include:

  • Property owner’s equity: The more the property owner has invested in the property, the more likely they are to pay off the mortgage, making the note more valuable.
  • Property owner’s credit score: Higher credit scores mean lower risk for note buyers and higher quotes for note sellers.
  • Payment history: A longer positive payment history increases the note's value.

Step Five: The Property Evaluation Process

During this stage, you're primarily hands-off, but the mortgage note buying company is busy getting everything in order to officially close the sale and sell the notes. This includes:

  • Appraisal Process: A full evaluation is carried out to determine the current property value of the real estate. This usually involves a Broker’s Price Opinion or a Drive-by Appraisal, depending on the circumstances.
  • Title Search: A title company examines the legal history of the property, checking for any claims, liens, easement rights, unpaid taxes, and other restrictive legal statuses.

Step Six: Closing the Sale and Receiving Your Funds

Once everything checks out - which is typically the case - the process advances to closing the sale of your mortgage note, effectively allowing you to sell your notes. This is the point where the property owners are informed about the sale of their mortgage notes. They are reassured that their mortgage notes remain the same and are informed about where to send future payments.

To finalize the sale and secure the mortgage note, you need to attend a closing at a local title company to sign the final paperwork, including the notes. This mortgage paperwork makes the sale official and transfers ownership of the mortgage notes. After the title company sends the mortgage note and other forms, typically on the same day as closing, the funds from the notes are wired directly to your bank account.

Remember, it's advisable to review your mortgage note and other notes in your written purchase agreement with a Real Estate Attorney if possible, to ensure everything is in order.

Additional Tips

If you're considering selling your note in the future, one option is to sell your real estate note to a buyer using owner financing. Some reasons for choosing owner financing include attracting more potential buyers for your property, offering more flexible terms (often when working with buyers who can't obtain financing through a bank), or managing a sale between family members or as part of a divorce agreement.

Here are some tips for creating value and structuring your mortgage note for an optimal sale through owner financing:

  • The larger the down payment, the better. For residential, a down payment of 10% is ideal, and 20-30% for commercial notes.
  • The more equity in the property, the better. This is achieved, in part, with the above-mentioned down payment, as well as principal payments received.
  • Always consider the buyer's credit and obtain a current credit report. Ideally, the credit score should be 600 or above.
  • Ensure that the sales price aligns with current market values and that interest rates are comparable to bank rates.
  • The condition of the property is another important consideration when creating value for your note. A note will be worth more when the property is in good condition, located in a desirable area, and is currently owner-occupied and well maintained.

Understanding the risks involved in selling your note is crucial, especially when decoding mortgage liens. For instance, if the borrower ceases to make payments after the note is sold, the new note holder, often the note purchasing company, is typically responsible for taking action to collect the debt. This can involve various legal actions, including initiating a foreclosure process. Therefore, when selecting a note purchasing company, consider their experience and procedures for handling such situations, including their expertise in mortgage liens. This comprehensive guide will help you navigate the process and make an informed decision on selling your house note.

Category:
Written by
Carlos Aispuro
Lender Relationship Director

With thirty years of experience in banking, debt collections, compliance, audit, and governance, I have supported strategic plans and improved customer experiences. I possess hands-on knowledge in crucial C-Suite areas, including developing new policies and procedures, optimizing their models, and exploring new tools to help institutions achieve their goals more effectively.

  • Banking, debt collections, compliance, audit, and governance expert
  • Crucial C-Suite areas expert

FAQ

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What Is a Real Estate Note Buyer?

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What Is a Note Deal In Real Estate?

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What Are The Risks Of Buying Real Estate Notes?

Investing in real estate notes is not without danger. These dangers include the potential for the homeowner to stop making loan payments, which could result in financial loss for the investor in the note. The investor can suffer financial loss if the property is put up for auction and sells for less than they paid for the note.‍
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How Do You Calculate Note Yield When Buying Real Estate Notes?

RATE function in Excel shall be used to calculate note Yield.‍
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Which Financial Metric Shall be Considered When Buying Real Estate Note?

We recommend considering Note Yield as the most complete metric for a note investment.‍

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