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Ten years ago you sold your home to a responsible young couple and agreed to carry the loan. It was a win-win situation. The house closed quickly and the couple moved into their new home. You felt pleased with the nine percent interest rate you charged and the monthly payments arrived in a steady stream.
Now you’ve changed your mind. Maybe you need cash to handle an emergency or invest in a business. For whatever reason, instead of the monthly income, you want one big check in exchange for the mortgage note you’re holding. When you sell your private mortgage note, keep the following considerations and cautions in mind:
Know What Makes Your Note Valuable
Educate yourself about the quality and value of your mortgage note. People who know more about what makes a note valuable do have an advantage. Unfortunately, no simple formula exists for determining the price of a note, but you can educate yourself about the various factors that make it marketable. For example, high interest rates, a big loan-to-value ratio, or a history of timely payments are factors that increase the note’s value. Avoid selling your note for a lower price simply because you didn’t know the basics about what makes a note valuable. Your real estate broker, real estate attorney or accountant can probably explain the basics to you.
Get Detail Oriented
When the note buyer quotes you a price, make sure this quote is a net price that includes any fees or commissions. Many buyers do not charge the note seller for certain expenses associated with selling a note (for example, an appraisal fee or closing cost), but it is wise to clarify this in writing.
Don’t Look Back
When selling the whole mortgage note, Sharon Best, a real estate attorney in Washington state, says it is best to sell “without recourse.” The term “without recourse” means that you are not liable if the payor (the person making payments on the mortgage note) fails to make payments after you sell the note. Consult your real estate attorney if you have any questions about liability when selling your note.
Get Organized
To avoid problems or delays with the sale, be ready to provide relevant documentation such as the promissory note, the recorded lien (mortgage, deed of trust or trust deed), hazard insurance policy, and the mortgagee’s title policy (if applicable). The note buyers will tell you which documents they need. Remember that the original note is a valuable, negotiable instrument that you need to endorse in order to sell. Consult your real estate attorney if you have any questions about which documents are needed, or if you feel uncomfortable handling or signing important documents.
Be Ready to Say No
Try to plan ahead and avoid desperate situations where you need the cash from your note immediately. If you are not willing to walk away from a deal, a buyer could use your financial predicament to give you a lower price than what your note is worth. Although most note buyers are professional and trustworthy, you should always be ready to contact your second option if the first one falls through for any reason.
Educate yourself about note selling and buying. Just like your house, selling your note can be an experience where both the buyer and seller win.
From NoteWorld.com. Written by Judy Beaudette

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