Selling notes to mortgage buyers can be beneficial for sellers who are providing owner financing such as seller carry back trust deeds, land contracts, and contract for deed. There are many reasons note holders elect to sell their real estate contracts, but the most common is to obtain lump sum cash.
Before selling to mortgage buyers, note holders should become educated about the process involved, type of documents required, and how to obtain the highest price for their note.
Mortgage buyers normally require specific documents to ensure they are investing in a properly executed seller-financed contract. At minimum, note buyers require a legally-binding promissory note; accurate payment history; property tax records; proof of adequate homeowner’s insurance; and appropriate income tax reporting.
It is crucial to execute legally-binding real estate contracts when using owner will carry contracts. Otherwise, sellers limit their options should they decide to sell the mortgage note at a later time.
The first step of selling to mortgage buyers involves locating a credible source. The Internet can be a good resource, but note holders must engage in due diligence by conducting research. At minimum, sellers should check with the Better Business Bureau, state business licensing agencies, and through client referrals. Credible mortgage buyers will not have a problem providing referrals.
After locating a suitable mortgage buyer, note holders will submit their request for review. Note buyers will require information about the property including: the type of real estate, property address, sale date, sale price, down payment amount received, interest rate, payment amount, current loan balance, number of late payments, and the borrower’s current credit score.
Mortgage buyers review financial records and loan documents, than obtain a property appraisal to determine fair market value. Oftentimes, note buyers utilize a broker price opinion (BPO) appraisal which is an affordable option to traditional real estate appraisals. In most cases, note holders are responsible for appraisal costs.
If mortgage buyers are interested in purchasing the note they will submit an offer to the note holder. If accepted, closing documents are executed and must be signed and notarized by all parties involved in the transaction. Once closing takes place, funds are provided to the note holder and mortgage buyers own the note.
In some cases, mortgage notes can be sold in part. This can be a good option for sellers who require lump sum cash, but do not want to sell their property. In addition to selling partial notes to mortgage buyers, note holders may want to scout out real estate investors who specialize in buying notes. A good way to locate investors is through local real estate clubs or online networking groups.
The overall process of selling mortgage notes normally takes between 3 to 4 weeks to complete. It is strongly advised to have a real estate lawyer review contracts to ensure they are legally binding and properly recorded. It is also a good idea to work with local mortgage buyers when possible.