Selling Mortgage Notes – Mortgage Donation Or Write Off?

Someone wants to sell their mortgage note but they haven’t received payments for a year, are in second position, or facing foreclosure. They need help but what can be done?

Here is an option for non performing mortgage notes you might not have heard about…donating to charity.  Our guest author works with a non profit organization with a unique solution to defaulted notes.

(Editor’s Note: This article is not intended as legal or tax advice.  Please seek the assistance of a competent attorney and/or accountant for legal or tax advice.)

Selling Mortgage Notes – Is a Mortgage Donation Better Than a Write Off?

By Dr. Ken Rich

What do you do with a mortgage, promissory note or deed of trust when the debtor stops paying?

After the probabilities of payment in full and resell at a discount are exhausted – is it worthless? What if the property is worth less than the 1st mortgage? What if you’ve heard that the bank is foreclosing on their 1st? What’s going to happen to you?

There are still three options available to debt instrument holders: Read more

Buying and Selling Notes – What is the Current Property Value?

One of the considerations when buying and selling mortgage notes is knowing the current value of the home. After all, the property is the collateral and knowing its true value will greatly affect how much an investor will pay for a note.

Historically this process was a bit easier, when everything was in an “up” market.  But with property values still on the downside or just recovering, it is often difficult to put a (safe) number on it. At least one that everyone agrees on.

Although there are excellent programs on the Internet that help the average consumer to get an idea of value, they are not always accurate. The actual value of a property can be determined in a couple of credible ways.

Often, note investors get what they call a “drive by” appraisal or valuation.

Usually performed by a licensed appraiser, the report will  include other sales or comps in the area. The main difference is a “drive- by” evaluation does not require the appraiser to have access to the interior of the property. The appraiser actually drives by and takes pictures from the street for the report.

Some investors are using what is called a Broker Price Opinion (BPO) – an evaluation based on the advice of a real estate agent or broker. They are often very similar comparable to a “drive by” and at a lower cost but do not follow the strict guidelines of a certified appraiser.

The note buyer may even require a full interior appraisal to get comfortable with the value. This might be the case when there are substantial improvements to verify or there’s concern over the property condition.

The actual approved or preferred method will be up to the individual investor.  While they are buying the mortgage note and not the property itself, the value is still important in deciding risk, investment to value (ITV), and the price they will pay to purchase the remaining payments.

Questions on Selling Mortgage Notes

Owner financing is on the rise with more sellers agreeing to accept payments from buyers. There are many reasons people agree to a carry-back real estate notes including:

• Quick sale of the property
• Monthly income from the note
• No hassles of bank financing
• More qualified buyers
• Property that is hard to sell or finance

Rather than waiting 20-30 years for payments, many sellers opt to sell future payments to a Note Buyer. Here are the seven most common questions we receive on selling mortgage notes and trust deeds.

Why Would I Sell My Mortgage Note?

Circumstances change and many sellers would prefer cash today rather than small payments that trickle in each month. Here are just a few reasons people have sold their note 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 miss payments or having to foreclose
• Accounting headaches, IRS regulations, paperwork hassles, and the list goes on…

What Is A Note Appraisal?

A note appraisal reflects the current market value of your payments similar to what a real estate appraisal provides for real property. Frequently referred to as a “quote” it shows what your future payments are worth to an investor in cash dollars today. We recommend having it evaluated once a year as pricing may change based on market conditions.

How Do I Maintain the Value of My Note?

Many of the items that affect the value were determined at the time the property was sold. However, keeping good records of the payments received and requiring the buyer to provide annual proof of current taxes and property insurance will help maintain the value of your important asset.

Can I Sell Just Part Of My Promissory Note?

Investors can purchase all or part of the remaining payments. Selling part of the payments allows you to receive a lump sum of cash up front, then payments when the note reverts back to you.

To minimize the discount, many people elect to sell just enough payments to meet their cash needs today and keep some of the future payments as an investment or nest egg. Always ask for an option that meets your needs.

How Is The Value Determined?

The value of a note is affected by the down payment, interest rate, payment amount, length of repayment, buyer’s credit rating, and payment history. The type, condition, and value of the property also impact the value of your note.

The time value of money, which makes payments due now more valuable than payments due in 20 to 30 years, is also factored into the offer. Due to inflation, money in your pocket today is generally worth more now than later. All of these elements will be taken into consideration in determining the current value of your note.

How Will Selling My Note Affect The Payer?

The payer or buyer experiences no change in the way the payments are structured. The only change will be the address where the payments are mailed.

How Do I Get Started?

The first step is to obtain a quote from a note buyer. The investor will ask some questions on the property sale and terms of the promissory note. This can usually be done over the phone or by completing an online worksheet. The investor may also request copies of the documents relating to your transaction, such as:

• Promissory Note
• Mortgage (or a Trust Deed, or Land Contract in some states)
• Closing statement
• Buyer information
• Pay history and current balance
• Previous title insurance policy
• Current hazard insurance policy

The investor will provide an offer subject to the standard title, appraisal, and buyer’s credit review. Once the review is finished and the documents gathered the transaction is reading for closing.  This process typically takes 2-4 weeks.  If preferred, an attorney or title company can handle the exchange of funds for the original closing documents.

Grab your copy of the Note Buyer List today!

Quoting Cash Flow Notes

When it comes to quoting and buying mortgage notes there are basically two camps of note brokers.

One camp takes the “Quote on the Fly” approach, while the other has the “No Note, No Quote” mentality. Read more

How to Negotiate Cash Flow Notes

One of the more popular questions, after “How do I find notes?” is “How do I negotiate with a note holder?”

Since the cash flow business affords consultants the ability to determine their own fee, many new note brokers feel challenged on how to present an offer. These 5 tips should help you be that much closer to closing the deal! Read more

Let’s Be Brutally Honest About Real Estate Notes

There is a difference between being honest and being brutally honest. For example, if I ask my wife if my new sweatshirt makes my gut look big, an honest answer might be “Kinda”. A brutally honest answer would be “No, your gut makes your gut look big.”

As someone who has taken literally thousands of phone calls from note holders, I’ve always been honest, but I’ve never been brutally honest, until today. Read more

How to Sell Your Mortgage Note

Tired of receiving monthly payments?

Wishing for 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 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.

Click Here for a List of Note Buyers

Click Here to Download a Worksheet (PDF)

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 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.

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 they will handle the rest for you!

Sometimes it is not only what you know, but who you know.

Knowing the right people can not only make things easier, in the case of the 2010 Directory of Owner Financed Note Buyers, it could also make you more money!

Gain access to our personal Rolodex of experienced note professionals that took years to develop.  Work direct with knowledgeable investors, educators, and master note brokers.

What to Do When a Balloon Mortgage Payment is Due – Real Deal #158

Owner financed notes often include a balloon payment requiring the buyer to refinance in order to payoff the remaining amount due the seller.

But what options are there for notes when a balloon is due but the buyer can’t refinance? Should the seller consider extending? Read more

How Much Will You Pay For My Note?

If you buy or broker notes, you know pricing is the first thing sellers ask when looking to cash-out their payments from a seller carry back. Discover what sellers are really asking and the best way to answer the “What’s Your Discount” question.

It’s natural for sellers to want to know the amount of money they will receive to sell future payments on a contract or mortgage. After all, it is the need for cash that made them make the call in the first place.

But if you listen closely, you will realize they are asking something beyond just the bottom line number. Sellers want to know:

Will you pay me a competitive price?

Are you trying to take advantage of me?

Will you treat me fairly?

This means the answer needs to accomplish several things: Read more

Note Buyer Success Story

Canyon Capital has been added to the Directory of Owner Financed Note Buyers. Discover a new investor listing and read how the owner went from start-up note broker to note buyer in just a few short years.

Note Investor (NI) recently interviewed Greg Gehlen (GG) to learn more about his note buying programs. Canyon Capital specializes in mobile homes on land and pays fees to cash flow brokers for the purchase of notes, trust deeds, and contracts.

NI: What is the current focus of your company?

GG: We buy seller-financed first-position lien notes in the Western U.S. Our primary focus is buying partials to still keep deals together that may not otherwise work.

NI: How did you get your start in the note business?

GG: In 2004 I wanted to buy or start a business and after I looked at a number of existing businesses I decided the best option for me would be to start a business. I attended Noteworthy here in Las Vegas and found a wealth of great information (people and materials) at the conference to get started in the paper business.

NI: What unique benefits does your company provide?

GG: We are able to make decisions quickly on files and we also buy notes that many people are not interested in – mobile homes on land.

NI: What type of notes or transactions will your company consider funding?

GG: We buy notes in the Western U.S. which includes WA, OR, CA, AZ, NV, NM, UT, CO, MT, ID, and WY. The type of note we prefer is mobile homes on land (no park paper). We will look at notes up to $150,000 but prefer partials under $50,000. We like to look at credit if possible but down payment, a solid pay history and property value are more important to us.

NI: What type of deals would just waste your time?

GG: New notes with small down payments and poor credit are not files we will fund.

NI: What do you consider the best methods for finding cash flow notes? Read more

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