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Note Buyers – Pitfalls to Avoid When Buying

December 17, 2021

What Are Mortgage Note Buyers?

There are numerous companies that focus solely on purchasing mortgage notes from lenders. When someone sells a mortgage note, the payments from the borrower do not increase or decrease in price, but they are sent to the new note owner. 

Mortgage note buyers include people and institutions within the secondary mortgage note market. These purchasers provide the owner of a mortgage note with a way to receive a lump sum of cash upfront rather than a stream of payments from a borrower.

What Are Private Mortgage Note Buyers?

Private mortgage note buyers are individuals and entities that purchase promissory notes secured by real estate. Many lenders have a need to sell the loans that they create to private mortgage note buyers as a way to recycle capital and continue lending to the public.

Both traditional and private mortgages include a mortgage note, but traditional mortgage payments are sent to a bank. This differs from private mortgage payments, where the borrower instead pays a private person or institution.

The owner of a private mortgage note can decide to keep the note and receive the monthly payments from the borrower or sell the note to a mortgage note buyer. If the owner of the private mortgage note decides to sell it, the amount of money they will receive varies on a few different factors.

These factors may include:

  • Credit score of the borrower
  • The property’s worth
  • The amount and interest rate of remaining payments
  • The length of mortgage term
  • The down payment made on the note

Some criteria to look for in a mortgage note buying company include:

Trustworthiness

A trustworthy mortgage note buying company will provide you with a quote without asking you to sign something beforehand. If a company asks you to sign something beforehand, it should act as a red flag that they may not be trustworthy.

Experience

A mortgage note buyer that has more than a few years of experience purchasing mortgage notes will likely be more knowledgeable about the process and pricing than newer companies.

Accreditations

Although not all mortgage buying companies have accreditations, these can be helpful in identifying whether or not they have the necessary expertise in purchasing mortgage notes.

Reliability

A reliable company has accessible contact information and can be contacted easily.

Choosing the Best Mortgage Note Company

Choosing a mortgage note buying company can be easy when you know what to look for. Look for a company that is responsive and can answer all of your questions. If the company you’ve chosen to work with isn’t providing you with enough information, explore other options and shop around to find the best mortgage note buyer for your needs.

Individual investors, businesses and institutions can purchase private mortgage notes. Sellers should explore their options to make sure they are choosing the best company for their situation.

If you decide to work with a note broker, versus a direct note buyer, the first thing you should do is verify that the note broker is licensed and legitimate. Although some states do not require a special license, many states do require these businesses to obtain certified real estate broker licenses.

Why Companies Buy Notes

So, what’s in it for these companies that buy mortgage notes? As with any business, there’s profit to be gained from purchasing and selling private mortgage notes. Note buyers purchase private mortgage notes at a price that will allow them to make their money back — and then some — once the loan term is up or when the property or loan is re-sold. Note buyers, like any real estate investor, are looking for high-yield notes that offer a solid return on investment.

There’s also a low amount of risk in note buying. Real estate has a long-running reputation as a safe investment; plus, its physical property serves as collateral for any deal gone awry. The investor always has the option to sell the property on the open market and make his or her money back — or even more than that.

Understand the process of buying a mortgage note.

Once you are aware of how a mortgage note works, you will need to learn how to buy a mortgage note from the bank. Follow this process below and keep in mind some key tips to be successful. 

  1. Determine your objective.

Before approaching a bank, you should have a real estate investment plan already in place. First, you need to determine your risk tolerance and whether you plan on flipping or holding onto the mortgage note. 

If you are looking for a steady payment stream that provides a high degree of income certainty, then you will likely look for stable and low-risk mortgage notes. If your goal is to make a big splash via a one-time trade and have the necessary risk appetite, you might consider a high-risk note trading at a significant discount.

  1. Find a note to buy.

Two major drawbacks of exploring the secondary market for private sellers are the pricing inefficiencies and lack of regulation. These factors often create a seller’s market. Even the most experienced note brokers can spend countless hours searching online sites for attractive deals from private sellers. 

This is where banks come in handy. Banks’ lending capacities are often hamstrung by the amount of perceived “bad debt” that they hold on their books. If they want to issue more mortgages, one way to increase capacity is to unload mortgage notes.

However, keep in mind that while a bank views mortgage notes as a risky asset, it does not necessarily mean the borrower has stopped making repayments. The particular risk profile might require such a designation independent of the borrower’s performance. Either way, banks often view selling the debt as an appropriate business decision, and this creates more favorable secondary market opportunities for note purchasers.

  1. Review the “tape.”

A mortgage note “tape” is a datasheet that discloses some of the information necessary to evaluate the mortgage note’s investment value. The tape should be one of the first resources used in the decision-making process.

  1. Skip customer service if possible.

You can save yourself time (and headaches) if you can position yourself directly in front of the bank’s decision-makers. As is the case with any products or services company, there will be barriers to entry for a new customer.

Not everyone who walks through the door, picks up the phone or submits an online appointment request is that interested in purchasing something. That is why companies have a customer service process in place — to reserve a decision-maker’s time for those looking to conduct real business.

That is the advantage of having a real estate investment plan. The company knows you’re serious, and more importantly, the decision-maker knows you will not be wasting their time.

  1. Determine your bid price.

Both bid and offer prices can demonstrate inconsistencies, and the final price is often subjective.

There are objective factors to incorporate into a price calculation. They can include (but are not limited to) the borrower’s credit score, the borrower’s performance, the remaining number of payments, the loan’s interest rate, the loan type and the loan’s final maturity date (when the loan is repaid in full).

Get the rewards of a rental property without the fuss.

Mortgage notes produce a consistent income stream without the daily nuisances of landlord responsibility. It is an ideal way to invest in real estate without a ton of time and effort.

Banks will typically be your most reliable source because they are usually looking to unload inventory. Be sure you know how to buy a mortgage note from the bank, however, before approaching an institution willing to sell.

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Buy & Sell Right Buyer for Mortgage Note

Promissory Note Buyers – What Are They Looking For?

December 10, 2021
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Choosing the right promissory note buyers is one of the most crucial steps when engaging in any type of financial and/or investment transaction. It is to see to it that you are working with the right people, the right professionals who know the rules and regulations your mortgage note should follow to ensure you do not violate any federal or state laws. If you are looking to sell your real estate promissory note, you need to make sure that you are aware of the steps you need to take and avoid some of the mistakes that are made when selling a note. 

What Is a Promissory Note?

Before we find out what the factors are that make up a perfect promissory note — one that any promissory note buyer would take interest in, let’s tackle the basics first: What is a Promissory Note?

A promissory note is a written agreement regarding borrowed money. It’s a promise to pay, and it should contain the terms of the agreement to do so. This type of document enforces a borrower’s promise to pay back a lender by a specified period of time, and both parties must sign the document.

It is a debt instrument that contains a written promise by one party (the note’s issuer or maker) to pay another party (the note’s payee) a definite sum of money, either on-demand or at a specified future date. A promissory note typically contains all the terms pertaining to the indebtedness, such as the principal amount, interest rate, maturity date, date and place of issuance, and issuer’s signature.

A promissory note establishes a clear record of a loan, either between individuals or between entities. By placing all relevant details in writing, a promissory note ensures clarity on due dates for payments and the amount of payments. It creates a legally binding promise with a mutual understanding regarding the borrowing and repayment of money.

A comprehensive and thorough promissory note should address six simple questions:

1.) Who the parties are

2.) How much the loan is for

3.) How you will repay the debt

4.) When the debt must be repaid by

5.) What happens if there is a default in payment

6.) Miscellaneous provisions

As a promissory note is a signed document that states a borrower has promised to pay what is owed (that they loaned) on the item in question, this can include a variety of types of real estate. For example, Residential homes, commercial properties, multi-family homes, land, and mobile homes to name a few.

Types of Promissory Notes

The common types of promissory notes include the following:

  • Commercial – These notes are more formal and detail specific conditions of a loan.
  • Investment – A company can decide to issue a promissory note to raise capital. The company can also sell these notes to other investors.
  • Personal or Informal – These notes generally involve one family member or friend loaning a sum of money to another family member or friend.
  • Real Estate – These notes accompany a home loan or other real estate purchase.

Classifications of a Promissory Note

Different classifications of a promissory note are appropriate for different types of agreements. You should create your promissory note to fit the type of transaction in which you’re involved. Promissory notes can be as simple as a one-time payment from a friend . Transactions such as car loans and mortgage loans require more complex promissory notes that cover details such as amortization schedules, interest rates, and more.

Simple Promissory Note

If you’re writing a promissory note for a lump sum repayment, you’ll typically use a simple promissory note. An example is lending your sibling $2,000. Your sibling agrees to pay your money back by January 1. A simple promissory note will state the full amount is due on the stated date; you won’t need a payment schedule. You can decide whether to charge interest on the loan amount and include the interest in the document if needed.

Demand Promissory Note

A demand promissory note makes payment due when the lender asks for the money back. You will typically need to provide a reasonable amount of notice to use this type of promissory note.

Secured Promissory Note

A secured promissory note secures the amount loaned with an asset of value, for example, a home or vehicle. If the borrower does not pay back the loan amount within the agreed-upon time frame, the lender has the right to seize property of the borrower.

For example, when you buy a house, the house is collateral on your mortgage. Your bank can seize your home if you do not make payments.

Unsecured Promissory Note

This type of promissory note does not allow the party lending the money to secure an asset for the loan. If the borrower does not make the payment, the lender must instead file in small claims court or go through other legal processes to enforce the note.

What Should You Include in a Promissory Note?

A promissory note should include all terms and details to which both parties of a loan are agreeing.Important details any promissory note should state include the following:

1.) Payor or Borrower – Include the name of the party who promised to repay the stated debt.

2.) Payee or Lender – Include the name of the lender, the person or entity, lending the money.

3.) Date – List the exact date the promise to repay is effective.

4.) Amount or Principal – State the face amount of the money borrowed.

5.) Interest Rate – If the loan involves interest, the promissory note should include the interest rate charged. The interest rate may be simple or compounded.

6.) Date First Payment is Due – A common arrangement is to have the first payment due on the first day of the month and subsequent payments due on the first date of the following months.

7.) Details of Each Payment – If multiple payments are due, the promissory note should include how often payments will be made as well as the amount of each payment.

8.) Date the Promissory Note Ends – In the case of an amortized loan, a loan paid off in a series of even and equal payments on a specified date, the date the note ends could be the last payment. An agreement could also involve a balloon payment, specifying a date on which the entire unpaid balance is due.

9.) Signatures – Make sure signatures of both the borrower and the lender are included on the promissory note. For a promissory note to be legally enforceable, the document needs the signature of each party.

Be Prepared In Time to Sell Your Note

During the preparation to sell your note, it is very important that you gather all records. Gather the records that confirm payments received, property insurance policies, property tax payments, and the original information on details of the note (e.g., property address, amount of the loan, interest rate, and the terms). There may be much more paperwork needed when the time comes to sell the note.

The potential note buyer will likely want the current credit report of the borrower currently living in the home. This is their way of protecting this investment and minimizing risk should they purchase the note.

What to Expect When Selling Your Note

It is important  to think that you are going to get the full value of the note. Note buyers are in the business of buying and investing notes and generally offer a discount on the note’s value. This is common because a note holder can cash out and receive a lump sum of cash while the note buyer can minimize their risk by purchasing the note at a discounted price.

There are risks of the note defaulting, which note buyers take into account. This, and the time and effort that goes into buying the note equals a discount on the value of the note. Depending on a number of different factors, a note seller can expect an offer anywhere from 60% to 90% of the value of the note. This is a broad range and could be more or less depending on how each note is valued, if the payments have been paid by the borrower on time, the credit of the borrower, current real estate market, or other factors.

The seller gets the cash up front, but note buyers expect a seller to realize that they, as the new note holder, would then assume all of the future risk.

Who Can Buy My Promissory Note?

Private individuals  purchase promissory notes on their own, but it is definitely wise to use an established and experienced company who has the knowledge and funds to buy notes. In some cases, a banking institution may wish to buy your note, as they are the majority of note holders in the nation.

However, for most note holders wishing to sell their note, a note buyer whose business it is to buy and invest in promissory notes will likely be the ones to purchase the note from you

What Is A Note Buyer?

The funding of money comes from the note buyer/investor when the note is bought and the seller is paid.

Note buyers are typically large companies that offer their services across the nation and a third party is not needed because the buyers purchase the notes straight from the seller. The buyer will generally have their own funds and can buy directly from the seller. 

One of the positive aspects to this is that the transactions are much quicker. Since the buyer does not have to go looking for an investor to fund the purchase, the process is easier and simpler. Buyer will have their set of guidelines which will determine whether they personally, should and can, make a purchase, and with a note buyer, they are able to notify a note seller promptly whether they can or not, depending on their funding.

Note buyers have the experience in this industry that is hard to beat. To become a note buyer, you must first become a note broker—this experience ensures that note buyers are experienced and competent to purchase a note without a third party involved.

When you are selling your note, it is in your best interest to deal with and sell to an established company that has experience of buying notes. Acquaint yourself with this information where you may need note buyers for your promissory notes and save yourself from future headaches and even litigation.

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Why Do People Sell Mortgage Notes?

December 9, 2021

Why do people, especially homeowners, decide to sell their mortgage notes? What motivates them to sell? 

The leading motivation for people selling mortgage notes is obtaining a large sum of money in a timely manner. For homeowners who need immediate cash flow, one option is to sell mortgage notes. Both private homeowners and real estate investors can sell notes to fund personal expenses or business ventures.

Depending on how much money you require, you can arrange one of these selling options with a buyer:

  1. Sell the entire note.
  2. Sell a specific dollar amount.
  3. Sell a percentage of the mortgage payment.

Why Sell A Mortgage Note?

The most common reason people, specifically private mortgage holders, decide to sell their mortgage note is to get hold of a lump sum of money to handle immediate needs.

Selling a note is a decision that is not always right for everyone, but can extremely be useful or profitable for many people with notes.

Selling your mortgage note would achieve other financial goals. Here are some of the most common reasons people sell their mortgage notes:

  • Invest in new real estate ventures.
  • Moving money to a different investment.
  • Obtaining a lump sum of cash
  • Build up emergency savings.
  • Stash extra money for retirement.
  • Pay off medical bills.
  • Pay off student loans.
  • Buying a house
  • Afford expensive home renovations or repairs.
  • Funding a family milestone, such as a college education or wedding
  • The need to divide an estate
  • The need to divide marital assets, which include a mortgage note
  • Concern about the risk of being a lender
  • Sometimes a homeowner turns to offering a private mortgage note to sell a house quickly, because the buyer is able to then bypass the traditional bank mortgage approval process. In these cases, the new note owners can sell the note quickly to receive the lump sum they needed all along.

So Why Should You Sell Your Mortgage Note?

One of the benefits of owning a private mortgage note is that it’s an easy investment to quickly liquidate. Some owners find that they’d rather have a large lump sum in lieu of a slow trickle of scheduled payments. Other owners sell a portion of their future payments to get a lump sum to handle a sudden financial need.

Why Would I Want to Sell My Loan for Immediate Cash Now?

When you convert part or all of your loan into cash, you gain several advantages in addition to immediate cash:

1.) You don’t have to worry about the payments you receive each month slipping away on life’s little expenses.

2.) You receive a substantial sum of cash right now, enough to accomplish some important goals.

3.) You don’t have to worry about collecting monthly payments or servicing your contracts; we handle all of that.

4.) You don’t have to worry about whether the taxes and insurance premiums are paid each year to protect your investment; we handle all of that.

5.) You don’t have to worry about whether your Borrower will continue to make his or her payments.

5 Reasons to Sell Your Mortgage Note Now

Those items aside, here are the top five reasons to seriously consider selling your note for cash today.

1.) The Housing Market is High

We have been there before haven’t we? You really don’t need a crystal ball to predict what is going to eventually happen.

Whether you want to call it a “crash” or a “correction,” the bottom line is that it can affect your pocket book if your payor becomes upside down in the property and ends up owing more on the note than the property is worth.

2.) Interest Rates Are Low

We have had a long run of banks lending money again. And buyers have been taking advantage of low rates.

Meaning, at this stage of the game, you most likely should have had a cash buyer or one that qualified for a bank loan. At the very least, if you charged a good interest rate, your payor should have seriously considered refinancing.

It could be time to cash out and keep your money.

3.) Stability

Let’s face it, the world is moving at a much quicker pace than it used to. The stock market moves the second a politician says something. Trade wars could go in our favor…or not.

All this turmoil makes for a lot of variables that don’t work in your favor. Don’t get us wrong…it could go very much in your favor…but it is a great unknown.

The question to ask yourself is would you rather roll the dice on the future economy, or ‘cash out’ and budget based on what you know you have?

4.) Seize the Day

The future is no place to place your better days. Maybe it is finally time to go on that trip to Europe, on a Caribbean cruise, remodel the house, or simply take a quiet family vacation on the lake.

Whatever you have been putting off for the future, maybe the future is now.

5.) Re-Align Your Goals

It is possible that you never really wanted to carry back a note in the first place, or it didn’t quite work out the way you hoped.

You don’t owe anybody any reasons for the change. We get it. Life happens. Situations change.

No matter what your reason for selling your note, we are here to help with a No Obligation Quote on what the fair market value of your note is today.

Did any of those reasons ring true to your current life situation? Are you thinking, “It’s time to sell my mortgage note.”? If so, request a FREE quote today and find out the value of your mortgage note. We have cash for your note now!

 

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Buy & Sell Mortgage Note Right Buyer for Mortgage Note Tips on How To Choose The Right Buyer

The Right Buyer For Your Mortgage Note

September 24, 2021
Right Buyer

The Right Buyer for Your Mortgage Note

Before selling your mortgage note, it’s important to research several note buying companies to find the right buyer. Visit their website. If they don’t have a website, chances are they aren’t reputable. Also, many offer free consultations so you can call and ask about the company and the note buying process. Only choose a company that is and has been in business for over 5 years.

For many property owners, finding the right company to buy your mortgage notes can be a nerve-wracking experience. In most cases, you don’t get to meet your note buyer one-on-one. Note buyers live in distant cities, so you’ll only communicate via phone or email. So how can you find an experienced and reliable note buyer who will give you the best return on your investment?

What Are Mortgage Note Buyers?

Mortgage note buyers include people and institutions within the secondary mortgage note market. These purchasers provide the owner of a mortgage note with a way to receive a lump sum of cash upfront rather than a stream of payments from a borrower.

When a mortgage note is set up, the initial lender is the owner of the note, and the person agreeing to the loan is the borrower. Once a note owner decides to sell to a note buyer, the buyer becomes the new owner.

There are numerous companies that focus solely on purchasing mortgage notes from lenders. When someone sells a mortgage note, the payments from the borrower do not increase or decrease in price, but they are sent to the new note owner.

Tips On Finding the Right Buyer for Your Mortgage Note 

Experience

A mortgage note buyer that has more than a few years of experience purchasing mortgage notes will likely be more knowledgeable about the process and pricing than newer companies.

Accreditations

Find out if the mortgage note buyer has an A rating (at the very least), and no unresolved complaints. While it is not legally required, many leading note buying companies are accredited by the Better Business Bureau. If the company is accredited with a strong rating and no complaints, you can feel confident that it is a strong business.

Although not all mortgage buying companies have accreditations, these can be helpful in identifying whether or not they have the necessary expertise in purchasing mortgage notes.

Trustworthiness

Follow your gut feeling. Does the company seem trustworthy? Has it completely answered all of your questions? Does it seem to be looking out for your best interest? If you have answered yes to all of these questions, chances are you have found a dependable note buyer. If you don’t feel comfortable with the note buyer, then move on to another.

A trustworthy mortgage note buying company will provide you with a quote without asking you to sign something beforehand. If a company asks you to sign something beforehand, it should act as a red flag that they may not be trustworthy.

 

If you’ve found this article interesting, then you’ll surely be hooked up to the following:

 

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