A mortgage note is used to secure real estate loans and records the borrower’s promise to pay. Mortgage notes can be sold to real estate investors or private buyers in exchange for lump sum cash. Many reasons exist to sell mortgages. Some sellers need relief from the financial burden, while others need cash to pay off debts or invest in other properties.
When selling a mortgage note specific protocol must be followed to record the sale and transfer property deeds. The first step involves locating a buyer, which is typically a real estate investor. The Internet can be a good source for finding investors who buy notes. Start by looking for online investor networking groups or join local real estate clubs.
Real estate investors require specific information regarding the mortgage note such as the face value, outstanding balance, interest rate, number of remaining payments, if the note payments are current or delinquent, and purchase price.
Once a buyer is found, the property secured by the note must be appraised. The cost of real estate appraisals is generally absorbed by the seller. Most sellers obtain a broker price opinion appraisal which can consist of a drive-by inspection or internal inspection of the property. When entering into negotiation it is important to determine the responsible party for real estate related expenses.
In order to close the sale, an Assignment of Mortgage document must be executed by a real estate attorney. Mortgage assignments transfer property rights to the buyer and are recorded through local courts.
There are instances when sellers sell a portion of their mortgage note. This often occurs when sellers offer special financing options to a third party. These can include seller carry back mortgages, subject to, or lease purchase option agreements. Sellers can sell a portion of forthcoming payments by executing a Partial Purchase Agreement. Once the terms are met, property rights revert back to the seller.
Closing the sale can take place in person or via mail. When closing takes place face-to-face, sellers are required to provide original loan documents including the mortgage note, deed of trust, and contract for deed. When closing occurs via mail, original documents must be signed, notarized, and returned to both buyer and seller.
The final step of selling a mortgage note involves the buyer remitting payment. Investors can submit payment via certified check or electronic transfer. The time required to close the sale can take a few weeks to a few months.
It is crucial for both parties to engage in due diligence when investing in mortgage notes. Sellers should conduct research to verify the investor is in good standing. It is smart to obtain references and contact each. Check with the Better Business Bureau to see if any negative reports have been filed. Check with the state to ensure the investor is licensed to conduct business.
Investors should conduct property records search to ensure the property is not in foreclosure and does not have tax liens or creditor judgments attached.
Always work with a real estate lawyer to ensure contracts are legally-binding and abide by state laws. Selling mortgage notes can provide a win-win solution for all parties involved as long as proper protocol is followed and due diligence is conducted. Those who do not adhere to protocol can place their self at risk for financial loss.