Mortgage notes are legally binding contracts secured by real estate. The document records the promise to pay funds borrowed to buy houses, buildings or vacant land. Also known as promissory notes, mortgage loan contracts record the amount of funds borrowed, interest rate, and person responsible for payment.
Mortgage notes can be sold to private real estate investors for a lump sum of cash. Numerous reasons exist for selling bank notes. The most common include obtaining cash to pay off credit cards and other types of outstanding debts such as medical expenses or student loans. Private investors who buy real estate notes pay cash to note holders in exchange for receiving monetary installments originally paid to the owner.
When selling cash flow notes to investors, note holders must provide specific information about the note. Investors want to know the face value, interest rate, number of payments received, status of the note (current or delinquent), balance due, and sale price.
After reviewing mortgage notes for sale, investors present their initial offer. If the offer is accepted, sellers might be required to provide financial documents including current and previous years’ tax returns, income statement, title insurance and amortization schedule.
Mortgage buyers generally require a real estate appraisal. Some private investors cover the cost of property appraisals, but this expense is usually paid by the mortgage note holder.
Occasionally, real estate investors are satisfied with a drive-by broker price opinion. BPOs provide investors with information about the property and area where it is located. Drive-by BPOs are commonly used in real estate transactions that do not require physical inspection of the property.
The type of real estate appraisal and who is responsible for the cost should be discussed prior to entering into a contract with a mortgage note buying company or private real estate investor.
The final step of selling mortgage notes involves closing the sale. Sellers are required to sign an Assignment of Mortgage, which transfers all or part of future payments to the mortgage note buyer. Mortgage assignment documents must be recorded through the court system and all closing conditions met before funds are distributed.
Real estate closing can take place in person or via mail. When closing takes place in person, mortgage note holders receive closing documents prior to the meeting. Note holders are required to provide original security documents including deed of trust, mortgage note, and contract for deed. Upon approval, investors issue a check or wire transfer funds directly to the note holder’s bank account.
Selling mortgage notes to private real estate investors can take a few weeks or a few months to complete. Much depends on circumstances and amount of the transaction.
When selling real estate notes to mortgage buyers it is imperative to engage in due diligences to ensure you are working with a trustworthy professional. Obtain references and contact individuals who have worked with the mortgage note buyer.