Who sells a note and why?

No one ever sells a good mortgage note just for the heck of it. What happens is that the desire for cash comes up and the note holder looks at the note as a source. And right they are, but there is no reason to sell all of it to get a portion of it. Why would anyone want to give up an entire investment paying 6 or 7 or 8% or more, backed by solid collateral, especially in the present market, if they don't need to?

What if your investment portfolio or your CD account was worth several hundred thousand dollars and you needed $30,000 to repair your roof, would you sell the whole portfolio or all the CDs? I don't think so!

Unfortunately in the note business, there are many so called brokers who think that the key to success is in maximizing their commissions instead of maximizing the needs of the note holder. This not only scares off people with legitimate needs to use their note to get cash, but also gives the business a bad name.

The professional broker

A professional note broker will first find out why you want to sell and how much you need and then, help you find the best solution to get that amount. Their job is to collect all the data necessary to provide an investor with an investment package that is both appealing to them and that satisfies the needs of the seller.

The broker will ask you detailed questions about the property and the note itself to include the current value, the interest rate, monthly payments, whether there is a balloon payment due and when, length remaining and so on. They will also ask if you have the buyer's credit score and how old it is and they will ask if all payments have been made on time up-to-date. These are all legitimate questions that the eventual buyer of the note will require answers to.

The partial sale

Once they have the tools to evaluate the note and its salability, they will work with an investor to create an offer for you to buy a pre-determined number of monthly payments in return for the amount of money you want. You receive the funds and the note investor begins to receive the monthly payments you normally got. When the pre-determined number of months is up, the monthly payments revert to you. This is referred to as a "partial sale".

Two advantages – and what you could lose

This process has obvious advantages. Selling the whole note results in a heavy discount since the buyer assumes all the risks for the life of the note and has the time value of money working against them. The longer it takes to get their money back, the less the final payments are going to be worth due to inflation. Therefore the offers are highly discounted.

Secondly, when you agree to a "partial" sale, you don't really lose the collateral and you will start receiving income again in the future. In fact, depending on the details of the transactions, some partial sales result in you earning more than 100% of the value of the original note!

It is these two things you stand to lose if you fall into the trap of the unprofessional broker who wants you to sell your entire note so that their commission is as high as possible.

Never pay for quotes

One last point: never pay for a quotation and never bind yourself in the early stages on your information gathering. Quotes should always be free and without obligation. The broker will get paid by the note investor, only if they do a good job, for both you and the investor.

Free, no obligation, confidential quotes are available on line. On the link below, click on the "Mortgage Notes" tab and scroll down to the quote request form links. They are available in PDF form for faxing, or you can use the online form for quicker results.