Sell Real Estate Notes - Guidelines
By Steve Gillman - 2006
Why do people sell real estate notes? To raise cash quickly.
Real estate notes are the loan documents created when you financed
the sale of your house or investment property. They could be
mortgage notes, or a land-contracts or contracts-for-sale. The
important point is that the buyer is making payments to you,
and you want to cash in.
It's possible to sell the entire contract, or just a certain
number of payments. In either case, the buyer of your property
will have the same terms and payments. He'll just start making
those payments to whoever purchased your note.
To sell real estate notes can be an intimidating process.
Probably you already know you won't get the full face value for
your note, but will there be other fees you have to pay too?
How will you know if the buyer is reputable? What's a normal
discount on a note and why? Here are some guidelines you should
follow:
1. Pay no up front fees. If they ask for them, go someplace
else. You can find many note buyers who will check your buyers
credit and give you a quote without charging you.
2. Pay no other fees, with a couple exceptions. Buyers figure
their expenses before making the offer, so there are only a couple
fees you may have to pay. You may 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. You should only reimburse the
note buyer for the actual cost in these cases.
3. 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 up front.
Unethical note buyers sometimes quote one price initially, and
then lower it later, using 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 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 will usually arrange for that (and again, they
will 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.
Getting Top Dollar When You Sell Real Estate Notes
"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 will get a higher price. Notes
with higher interest rates and/or shorter loan periods will get
you 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.
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