The value of a note or contract is affected by many factors including the:

• Down Payment
• Terms of the Note
• Buyer’s Credit Rating and Payment History
• Type of Property Sold and Its Current Value

Since each transaction is unique, we offer a free note analysis based on your individual situation.

Fortunately it is easy to obtain a free evaluation in 3 easy steps:

Step 1 – Gather Copies of Documents

The first step is to gather copies of the documents. The primary documents utilized in the quoting process are:

• Settlement Statement
• Mortgage (Deed of Trust, Real Estate Contract etc)
• Promissory Note, and
• Payment Record

Hopefully copies are easily accessible with the originals located in a safe deposit box or other secure location for safekeeping. If a seller later decides to sell the payments then the investor will ask for a few other documents plus the appropriate originals at closing. But for now these copies will be reviewed for an accurate quote.

Step 2 – Complete the Quote Request Worksheet

The Quote Request Worksheet, also known as a Mortgage Submission Worksheet, is a simple single page form. This worksheet summarizes the transaction with most of the information obtained from the document copies. It includes details on the property type, buyer, repayment terms, and current balance. (Please visit the Quote Request and Free Note Analysis page to print a PDF version of the worksheet or to submit online).

Step 3 – Send for Review

The third step is to submit the worksheet and the document copies to an investor for pricing. Depending on the investor this might be submitted via email, fax transmittal, or an online submission process.

Most note buyers will provide a free no obligation quote within 48-72 hours. The quote is generally good for 30 days and is subject to due diligence, which includes review of the title, appraisal, insurance, buyer’s credit, and other underwriting items. The more information an investor has up front the fewer “subject to” items they will include with the evaluation.

Click Here to Request a Free Note Analysis!

Prefer a lump sum of cash today?

If you sold property with seller financing chances are you’ve wondered about selling the real estate note. Here’s how to sell a mortgage note, trust deed, or contract in 7 easy steps.

Step #1 – Request a Quote

Just complete a short informational worksheet to receive a free no obligation quote. This can be submitted online, by fax, or over the phone.

Step #2 – Provide Document Copies

To get started note buyers like to see copies of these three documents:

• Settlement Statement
• Promissory Note
• Mortgage, Trust Deed, or Contract

It is also a good time to be sure you know where the originals are located, especially the Promissory Note, as they will be requested at closing.

Step #3 – Accept Offer & Agreement

Once an offer is accepted it will be outlined in a written agreement. In addition to stating the price, the agreement will specify conditions of closing and who pays costs.

Step #4 – Note Buyer Review

The mortgage note buyer will perform a detailed review of the transaction, known as due diligence. This includes a review of the buyer’s credit, current tax and insurance status, payer interview, and other important items. They may also request copies of additional documents including a payment history, insurance policy, and existing title report.

Step #5 – Appraisal

The note investor will order an evaluation of the current property value. This usually takes the form of a Broker’s Price Opinion (BPO) or Drive-by Appraisal. The investor wants to be sure the property value is still equal to or greater than the sales price. If the value comes in low, the note investor may present a revised offer for consideration.

Step #6 – Title Search

The title search verifies ownership of the property and the mortgage note. It saves time and money to work with any title report that might exist from the original sale date. If the title search shows money is still owed on a prior mortgage it will usually be paid from proceeds.

Step #7 – Closing

When all steps are complete the note buyer will send the final closing documents for signature. The title company is often used to handle the exchange of money for the original note and transfer documents. Funds are typically paid in the form of a wire transfer or cashier’s check. You are also encouraged to have your attorney review and advise with the closing process.

We are Here to Help!

Selling your mortgage note can be a simple process when you work with an experienced note buyer. Just take a few minutes upfront to gather your information and documents and we will handle the rest for you!

Click Here to Request a Free Note Analysis!

Hoping to stand out from the crowd, sellers are advertising “Owner Will Finance!”

Accepting payments over time provides buyers an alternative to bank financing. Of course sellers don’t want to trade a house that won’t sell for a buyer that won’t pay.

Before you agree to “Be the Bank” read these 7 Tips For Safe Seller Financing!

Tip #1 – Review the Buyer’s Credit

How buyers have paid bills in the past is a good indicator of how timely they will make future payments. Always review the buyer’s credit prior to accepting a promise to pay.

Sellers can obtain a signed authorization from the buyer to pull credit through a reporting agency, or simply ask the buyer to obtain a copy of his or her report for review. Most note investors prefer credit scores above 675. If the scores are lower it will likely reduce any offers to purchase the note after closing.

Tip #2 – Get a Down Payment

The more money a buyer puts down, the more “skin” they have in the deal. The greater the equity, the lower the likelihood the buyer will stop paying.

When people have little to no equity, they are more likely to default or just walk away from the home. Few sellers want the hassle of taking back a property through foreclosure, so increase the odds in your favor by requiring a down payment.

Tip #3 – Verify Affordibility

If a buyer can’t afford the monthly payments it soon results in late payments or worse, no payments. Buyers should be willing to share their job history along with how much money they make each month. Paycheck stubs or tax returns can help verify the income.

A common gauge of affordability is to keep the housing expense around 27-30% of income. The monthly housing expense is a combination of the principal and interest payment plus 1/12th of the annual property tax and insurance bills (known as PITI). If a buyer makes $2,000 per month than the PITI should be no more than $540 – $600 using this rule of thumb.

Tip #4 – Set Valuable Terms

The terms include interest rate, payment amount, and the due date for payment in full. There are also late fees, default clauses, requirements for insurance, and other standard provisions.

While the terms can be whatever the buyer and seller agree upon, sellers that charge 2-4% above the standard mortgage interest rate increase the value of future payments. The buyer still saves on the expensive loan fees and the seller is compensated for having to wait for payments. Charging a below market rate means the buyer is unlikely to refinance in the near future. It also results in a higher discount should the note be sold.

Tip #5 – Seek Professional Help

The legal documents are an important part of safe seller financing. They put the agreement in writing and make sure the terms can be enforced. The do it yourself approach is great for some projects but when it comes to legal documents seek the help of an attorney or title company familiar with local laws and the HUD Safe Act.

These professionals handle the closing and prepare the documents. They will likely suggest a Promissory Note for the obligation to pay with a Mortgage or Trust Deed recorded in the county records. In some states a Contract for Deed or Real Estate Contract can be an alternative option. The HUD-1 Settlement Statement itemizes the sales price and payment of closing expenses.

Tip #6 – Collect Payments Like a Pro

Collecting the monthly payments, tracking the balance, and calculating how much goes to principal and interest is often referred to as servicing the note. A third party company or servicing agent can handle this process, automatically deposit payments, and provide the annual IRS Form 1098 mortgage interest reporting.

While it’s a whole lot easier to use a third party some sellers elect to collect payments on their own. This involves setting up an amortization ledger, taking a copy of the check or money order each month, and keeping the bank confirmation of deposit. To create a verifiable payment history it is best to avoid accepting payments in cash or cashing checks without first depositing.

Tip #7 – Track Taxes and Insurance

Making sure the buyer keeps taxes and insurance current is right up there with collecting timely payments. A check with the county where the property is located will verify if taxes have been paid current on their due date.

When the property includes a home or other buildings the documents should require insurance to protect against fire, hazard, or flood (if in a flood zone). The buyer can provide a copy of the insurance declaration page, showing the seller as a loss payee. A call to the insurance company when premiums are due will verify the coverage is being kept current.

Safe Seller Financing

These 7 tips for safe seller financing can help protect sellers. They also make the note payments more valuable to a note buyer. After closing, many sellers find they would prefer a lump sum of cash rather than payments over time.

We work with investors that buy real estate notes. If you would like a free no cost analysis of your note please feel free to contact our office.

Sellers have the choice to sell all or just part of their future payments for cash today.

Option 1 – When note buyers purchase all the remaining payments on a land contract, mortgage note, or trust deed it is considered a full purchase.

Option 2 – When the note buyer purchases just a portion of the remaining payments it is considered a partial purchase.

Here’s a closer look at two examples using the Full and Partial Purchase Options.

The Full Purchase

For example, a note has a balance of $90,000 at 9.0% interest payable in monthly installments of $1,140.08 with 120 months (or ten years) of payments remaining. When the seller sells all 120 remaining payments of $1,140.48 to an investor it would be considered a full purchase.

The Partial Purchase

If the investor only purchased the next 48 monthly payments of $1,140.48 each then it would be considered a straight partial purchase. Once the investor received the next 4 years of payments, the note would be reassigned to the seller and the seller would collect the remaining 72 payments (120 total payments less the investors purchase of 48 payments leaves 72 payments remaining to the seller).

The purchase can also involve splitting the monthly payments received from the buyer between the investor and the seller, also known as a split partial. Using the same example of 120 payments of $1,140.08 each, an investor might agree to purchase $600 of each remaining payment leaving a remaining residual of $540.08 to the seller for the next 120 months.

The terms of the transaction are spelled out in the Purchase Agreement. This important document outlines the servicing arrangement along with what happens in the event of an early payoff or default by the buyer. Competent legal counsel should review the agreement to protect the rights of all parties.

So What Option Is Best When Selling Mortgage Notes?

The best choice will depend on the cash needs of the seller and the value of the payments being sold.

A partial purchase can help minimize the discount but it comes with the worry of the buyer keeping payments current in the future.

A full purchase can give sellers peace of mind knowing they are through with the property once and for all.

Please contact us if you would like to discuss the options available on your owner financed mortgage note.

Understandably, a buyer that stops making payments is a major concern when using owner financing. After all, a seller-financed note is a very valuable asset.

Unfortunately many sellers fail to protect their asset when it comes to another area…verifying current property insurance and taxes.

Next to delinquent payments, the most common default by buyers is failure to keep the property insured and the real estate taxes current.

In fact many buyers will make their monthly note payments but fail to pay the insurance premium or real estate tax installment.

Sadly, a lapse in insurance can be devastating to both the buyer and the seller. If the property burns down and is not insured, the seller will probably never see another payment from the buyer.

If a buyer fails to pay the real estate taxes for long enough the county can actually foreclose on the property. In most states, the lien for county taxes even takes priority over mortgage note holders, leaving an unsuspecting seller high and dry.

The solution?

Verify the insurance and taxes are current and require the buyer to submit proof!

For insurance, require a copy of the declaration page showing the buyer as the insured owner and the seller as the insured mortgagee. Next call the insurance company to verify the policy is current and the annual premium has been paid. As the mortgagee listed on the policy you should receive notice of cancellation but it is safer to verify on or before the date premiums are due from the buyer.

To verify taxes are current simply check the county records using the property address or tax parcel identification number. This can be done with a phone call, a visit to the county tax assessor, or online.

Most documents require the buyer to keep taxes and insurance current and failure to do so qualifies as default under the note. Sellers can demand the default is immediately cured or start foreclosure.

Sellers as lien holders may also elect to pay the delinquent amount to protect their interest and add back to the amount due, depending on the terms of the actual note, mortgage, deed of trust, or contract.

Some sellers prefer to avoid the headache by setting up reserves through a third party servicing agent. This way the buyer pays an amount equal to 1/12th the annual amount for taxes and insurance establishing an escrow reserve account from which the bills can be paid.

A note buyer will also verify the taxes and insurance are current should the note holder ever decide to sell the mortgage note, trust deed, or contract.

Whatever the method, smart sellers know to protect their valuable asset by verifying the real estate taxes and hazard insurance are being kept current on the property!

Wouldn’t the seller rather get paid now and require the buyer to obtain a bank loan?

Here are 5 reasons property owners offer seller financing:

1. Reduced Marketing Times

What is the first thing a real estate agent does when property is not moving and has been on the market for 60 to 90 days? They reduce the price and add the tagline “price reduced” to all advertising and signs. Rather than reduce the price, it might be beneficial for the seller to offer financing. Buyers provided with financing can certainly pay full price in exchange for the many benefits they receive with owner financing, including the money they save by not paying expensive loan fees, origination fees, and points.

2. Increased Inventory of Prospective Purchasers

By offering owner financing, the seller increases marketability with a wider group of available purchasers. Statistics show that almost 40 percent of the American population is unable to qualify for traditional bank financing. While not all of the “unqualified” group would be an acceptable risk for owner financing, it still widens the market of prospective buyers considerably. Anyone who has added the words “Owner Will Finance” or “Easy Terms” to a For Sale ad or Multiple Listing Service (MLS) listing knows the phone will ring off the hook with interested prospects.

3. Reduced Closing Times

Another advantage of offering owner financing is substantially lower closing times. A closing involving a third-party conventional lender can take six to eight weeks while closing a seller-financed transaction through a reputable title company can take as little as two to three weeks. This is due to the reduced paperwork and less restrictive due diligence process.

4. Investment Strategy for Hard to Finance Properties

There are many properties that encounter financing difficulties including mixed use property, land, mobile and land, non-conforming, low value, and others. Investors realize excellent returns by paying a reduced cash or wholesale price on a hard-to-finance property and then reselling at a higher retail price with easy financing terms.

5. Interest Income

Why let the banks earn all the interest? Sellers can keep the property-earning income even after they sell by offering owner financing. For example, a $100,000 mortgage at 9 percent with monthly payments of $804.62 will pay back $289,663.20 over 30 years. That additional $189,663.20 (over the $100,000 mortgage) is power of interest income!

Work with Owner Financing Specialists

If considering seller financing, be sure to consult with a qualified professional to properly document the transaction.

It also helps to speak with note investors to gain insight on appealing terms and structuring techniques. This assures top-dollar pricing should you ever want to convert the payments to cash by assigning your note, mortgage, deed of trust, or contract to an investor.

This important legal document should be kept in a safe place, and here is why!

The promissory note is a promise to pay or IOU from the property buyer. It spells out the amount due and terms of repayment. In legal jargon it is known as a negotiable instrument. Similar to a check, the original must be presented to collect or prove ownership.

If the seller desires to sell and assign the payments to a note buyer, the investor will ask for the original note to be provided at closing. The promissory note is then endorsed over to the investor. Similar to endorsing a check, the holder signs on the back of the note.

Sample Note Endorsement on Back of Original Mortgage Note

Pay to the order of, (Insert name of investor), without recourse.

 

Dated this ____ day of _______, 2011.

(Seller Signs and Dates)

Sometimes the note endorsement is executed on a separate piece of paper, also called an allonge. The allonge is then attached as a permanent rider to the original note. The endorsement enables the investor to prove they are a holder in due course, with the same rights of repayment as the original note holder.

An investor may also ask for the original recorded mortgage or deed of trust at closing. However, if this original is lost, an investor will usually accept a certified copy from the county recorder’s office.

A lost original note, on the other hand, can cause a problem. In most states the note is not recorded. If the original note becomes lost a note investor may ask for a duplicate or replacement note to be signed by the payer or maker. This means going back to the person that owes you money and asking them to resign. This relies on their cooperation and can cause delays.

The investor will also ask for a lost note affidavit from the seller or note holder, stating the note has been lost and it will be presented if found at a later date.

Some investors will consider accepting just the lost note affidavit with a copy of the original note.  However, this is increasingly rare as a lost original note can create problems foreclosing should the buyer stop making payments.

The best option is to avoid losing the note by keeping it in a safe deposit box or a fire and waterproof safe. Some sellers elect to have the original held by their attorney or a third party servicing agent for safekeeping.

Whatever method you choose, be sure to keep the original mortgage note in a safe place that is easily located!

Increase the value with payment histories!

Keeping an accurate record of the payments received on a mortgage note is essential for knowing how much the buyer still owes.  This also establishes a record of their payment habits – with an added benefit.

The value of a note can be improved by presenting note buyers a verifiable payment history!

There are two main ways to keep track of payments on seller-financed mortgage notes: 1) outside serviced, or 2) seller direct.

Professional Mortgage Note Servicing

The first and easiest is to let a professional handle it. The payments are made to a third party servicing agent that keeps track of the balance and sends the money along to the seller. They will also send out the annual 1098 Mortgage Interest Statements and can hold original documents in safe keeping.

The DIY Approach to Collecting Payments

If a seller chooses the “Do-It-Yourself”’ method over a third party pro they will need to follow these steps:

1. Place original note and other original documents in a safe deposit box.

2. Make a copy of each check or money ordered received. Accepting cash is not recommended since it is hard to verify the payment history without a paper trail.

3. Deposit the payment and keep a copy of the bank record of deposit.  It is best to deposit each payment separately rather than combining with other checks.

4. Create a ledger or spreadsheet reflecting the date and amount of payments received.

5. Calculate the amount applied to interest, principal, late fees (if any), and the resulting principal balance. An amortization schedule or financial calculator can be helpful. Once calculated, record in the ledger.

6. Send out an annual statement to the buyer or payer along with the IRS1098 Mortgage Interest Statement.

7. Verify the real estate taxes and property insurance are being kept current. Consider establishing a tax and insurance escrow where the buyer pays 1/12th of the annual amount into a reserve account each month.

8. Send collection letters as necessary for late payments, lapsed insurance, or delinquent real estate taxes.

Why Note Buyers Want Payment Histories

When an investor agrees to purchase a note they will request a payment history. A verifiable payment history can improve the value of a note as it provides proof of timely payments. A payment history is considered verified when it is either provided by a third party or is backed up by the documents and records outlined above.

Unfortunately many sellers fail to keep track of the payments received. When they go to sell the note, contract, or trust deed they try to recreate the history from memory. Without any proof of payments received, a note buyer has to go on faith. Sometimes a payment history affidavit can substitute for a payment record but it still doesn’t add the value of verifiable proof.

Protect the value of your mortgage note! Set up a payment tracking method today.

Mistake #1 – Failing to Check Credit

The payer’s credit report lets you know how timely they have paid bills in the past. This is a good indicator of how they will pay on a seller-financed note. It also has a huge impact on how much an investor is willing to offer, should the seller ever decide to sell the note payments. Sadly, many sellers never check credit when offering owner financing.

The seller financing solution?

Have the buyer fill our a simple one page application that grants permission to pull their credit upfront or ask the buyer to pull their own credit and provide the report. Whenever possible, avoid accepting owner financing from any buyer with a credit score below 650 (above 700 is ideal).

Mistake #2 – Charging a Low Interest Rate

Money today is worth more than money tomorrow. A simple look at escalating food and gas costs will show a dollar today won’t buy as much next year or the year after! This concept, known as the time value of money, plays a large role in investor note pricing.

All factors being equal, an investor will pay more for a higher interest rate note. We’ve seen sellers charge 5% or less on notes. Imagine the discount when an investor wants a 10% yield!

The seller financing solution?

Charge at least two to four percent above the standard bank loan rate for a similar loan transaction. Be sure to take into consideration the credit, property type, and down payment, which may justify further increases in the interest rate.

Mistake #3 – Low or No Down Payment

The down payment determines how much equity the buyer has in the transaction. The greater the equity, the less likely a buyer will default. There is a reason banks require mortgage insurance whenever a buyer puts down less than 20%!

In desperation, some sellers will even accept a zero down payment. Unfortunately, these buyers have even less at stake than a renter. A renter at least has a security deposit along with the first and last months rent!

The seller financing solution?

Require a down payment of at least 10% to 20% at closing.

So these are the BIG three when it comes to valuing a seller financed note. Sure other things come into play (including property type, seasoning, terms, etc) but these are the three that impact pricing the most.

While a seller might not be able to find a buyer that meets the ideal in each category, they can attempt to compensate for any deficiencies. For example, a lower credit score might result in a higher down payment and interest rate. A great credit score might result in a more favorable interest rate.

Just remember that when the buyer receives a break, it’s coming out of your pocket as the seller!

Many sellers discover they would now prefer cash today rather than the small amount that trickles in each month.

Here are just a few reasons people have sold all or part of their seller financed mortgage notes 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…

Discover Your Options – Request a Free Note Analysis

The only way to decide what is best for your situation is to know the options available.

When you request a free note analysis it reveals the current market value of your payments -  similar to what a real estate appraisal provides for real property. Sometimes referred to as a “note appraisal” or “request for quote,” it lets you know how much your future payments are worth in cash dollars today!

We recommend having your note reviewed once a year as note values change based on market conditions.

Click Here to Receive Your Free Note Analysis Today!