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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.
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 you sell those real estate notes.
Houses Under Fifty Thousand | Sell Real Estate Notes - Guidelines