Prior to purchasing a seller financed note, the investor might ask for a payer estoppel.  This simple one page letter or document is sent to the person making payments on the note, mortgage, deed of trust, or real estate contract.

The estoppel explains the investor is contemplating the purchase of the note, reassuring the payer that all terms and conditions will remain the same.  It then summarizes the information on the note including current balance, interest rate, terms of repayment, and contact information for the payer.

In addition to confirming information, it also provides the payer an opportunity to validate or dispute the details provided by the seller.  This can be particularly important when there is no third party outside servicing company collecting payments and keeping track of the balance.

The estoppel, also known as the vendee verification, is usually sent to the payer by certified mail or some other method of delivery confirmation.  Most investors mail once the title and property value have been reviewed and the transaction is near closing.  It might also be performed with a payer interview or verbal debt verification.

Welcome to Real Deals!  It’s always easier to learn from real life so here we share information from actual owner financed transactions.

A land developer sold 10 to 20 acre tracts of land in Northern Washington State.  Knowing land can be more difficult to finance through conventional bank loans, the seller offered owner financing terms to buyers.

A Canadian citizen in nearby British Columbia was interested in one of the parcels and offered to purchase for $32,205 with a $3,390 cash down payment.  The seller financed the balance of $28,815 at 12.0% interest with the buyer making payments of $347 each month for approximately 15 years.

The payments on the Note and Deed of Trust were serviced through an outside escrow servicing company.  This company collected the monthly payments, kept track of the balance, sent out annual statements, held the documents in safekeeping, and acted as a neutral third party for the seller and buyer.

After about 5 years went by the seller desired additional capital to expand a new development.  Preferring cash  now rather than payments over time, the seller contacted a local private investor to purchase his seller financed notes.  After receiving 68 monthly payments the buyer’s unpaid principal balance had paid down to $23,122.90 with approximately 111 payments still remaining.

The private note investor purchased the right to all the remaining 111 payments and the seller received $20,654 upon assigning his note rights.  Additionally, the seller had received and retained the previous 68 monthly payments equaling $23,596 (68 x $367) plus the down payment of $3,390 bringing the grand total collected to $47,640 on the $32,205 sale. 

How was the seller able to collect more than the sales price?  The seller was earning interest at 12% on the owner financed note for over 5 years before deciding to sell the remaining payments.  Instead of the bank collecting interest, the seller became the bank to maximize profits.

Real deals are based on actual transactions completed within the past ten years. Market conditions change frequently resulting in pricing and underwriting changes by note investors.  Work with qualified professionals when creating new notes to obtain accurate and up-to-date pricing and investment parameters.