Sell Your Mortgage Note
Is it time to sell you mortgage note? If you think you need
to raise some cash, and you have a mortgage, contract-for-deed,
or other note from a house or other property that you helped
to finance, you can sell it to raise cash fast. You may not have
known that there are several ways to sell it though. The article
below will clue you in to the options you have.
What Is a Mortgage Note?
A mortgage is a document that pledges a property as collateral
if you default on the terms of a loan agreement. The loan agreement
itself is what we refer to as a mortgage note. (Loan documents
in general are referred to as "notes.") If you sold
a property and took back a mortgage on it - either a first or
second mortgage - you don't have to keep taking those payments
for the full term. You can sell the note to raise cash.
You will not get face value, however. Individual investors
and companies buy notes for one reason - to make a profit. Nobody
is going to pay you $90,000 for a note with a balance of $90,000
except under the most unusual circumstances (like if the note
gets 16% interest and the current rates are around 6%, for example).
The discounts can be very steep, in fact.
Get use to the idea that you will be losing a big chunk of
the balance then. On a $90,000 low-interest note you might get
just $70,000 cash. Of course, if this isn't acceptable, you may
want to simply wait and collect the whole $90,000 and all that
interest over the years. But if you have to sell, here are some
of the ways you can do it.
Ways to Sell a Mortgage Note
A full purchase is just that - you get cash for the note.
You are then no longer responsible for collecting payments. The
debtor now makes his payments to the new note holder.
A partial purchase is one in which a note buyer just buys
a predetermined number of payments. Perhaps this is the next
50 payments, for example. Then the remainder of the balance reverts
back to you. This is a way to raise the cash you need without
selling the whole note.
Split payment purchases are where the note buyer and you each
get a part of the payment. Typically this is a 50% split. This
is a way to continue receiving income while getting a chunk of
cash.
There are other ways to sell a mortgage note, including a
reverse partial purchase, where you get a chunk of cash but get
to keep receiving payments for a while. There are also note buyers
that will buy just the balloon payment that is due in, say, five
years. This can provide a way to offer financing when you sell
a property, while still getting cash at closing.
Ask a few note brokers what options they offer before making
a decision, and see the page Sell
Real Estate Notes - Guidelines for more on this topic - including
how to get the highest price when you sell a mortgage note.
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