Selling a Mortgage Note: The Process Explained

Selling a Mortgage Note: The Process Explained

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November 4, 2022

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Sometimes life changes unexpectedly. Homeowners might need a large amount of money for major events like sending a child to college, splitting assets in a divorce, or following a dream to start a business. A great option for homeowners to obtain the cash they need is to sell their mortgage note. In this article, we will define a mortgage note, discuss why you might want to sell a mortgage note, and guide you through selling a mortgage note.

What Is A Mortgage Note?

A mortgage note, also known as a promissory note or real estate note, is a binding legal document that provides a description of a mortgage loan for real estate, lays out the payment amount and terms of repayment, and assigns the borrower responsibility for repayment. Your home specified in the mortgage note is used as collateral.

Different Types Of Mortgage Notes

The type of mortgage note depends on the terms of the mortgage loan, but all mortgage notes essentially specify the same information. 

  • A secured mortgage note uses the borrower’s assets, like real estate, as collateral for the loan.
  • An institutional mortgage note is issued by a financial institution, and borrowers must often meet specific terms and criteria set out by the institution.
  • A private mortgage note is secured by a private lender and can be more flexible on terms and criteria of the loan than a financial institution. The buyer pays the seller directly with seller financing rather than paying a financial institution.

When Is The Right Time To Sell A Mortgage Note?

The right time to sell your mortgage note is different for everyone. The most common reason for selling a mortgage note is needing a large sum of cash quickly.

Death

After a loved one passes away, assets like real estate may need to be sold and the proceeds divided between multiple parties. The proceeds from selling a mortgage note can also be used for funeral expenses or paying off the loved one’s outstanding debts.

Divorce

A divorce agreement might require the sale of the marital home so proceeds can be split. Selling the home would also resolve any disputes about how much the home is worth.

You Need Capital

Sometimes you just need cash. The capital produced from selling a mortgage note could fund your dream of starting a business. You could also use the capital to make lifestyle changes, such as paying for college, making a large purchase, or undertaking major home renovations or repairs. The capital produced could also be used to modify your investment portfolio. The options are limitless.

Paying Off Debt

Debt can seem overwhelming at times. The funds from selling a mortgage note could be used to reduce monthly payments to creditors, and pay off student loans, medical bills, or other consumer debt in full. You can also sell a mortgage note to avoid real estate foreclosure.

How To Sell A Mortgage Note

Selling a mortgage note is a simple process for the note holder. Sales can often be concluded in as little as a few weeks, providing you with the lump sum of cash you need quickly.

Decide Between A Full Or Partial Sale

Once you decide to sell your mortgage note, you should consider which type of sale best suits your situation and financial circumstances. 

  • A full sale exchanges all ownership rights for one lump sum payout.
  •  A partial sale allows the noteholder to receive a significant amount of cash and still keep some of the mortgage payments. 

A full sale is the most common type of sale, and often occurs in a situation where assets need to be divided, such as a death or divorce. A partial sale is beneficial when the note holder needs capital but still wants to keep ownership rights of the property. 

Choose A Note Purchasing Company

When you are ready to sell, you will need to find a note-purchasing company licensed by the Florida Bureau of Real Estate that specializes in the type of mortgage note being sold. Make sure to do your due diligence. A reputable company will have years of experience selling mortgage notes, provide a no-obligation quote, and is easy to work with. You can also sell your note to a private licensed note investor who buys mortgage notes for passive income. 

Get A Quote

To get a quote, you will need to provide the note buyer with information from the mortgage note such as: 

  • The amount of the mortgage 
  • The length of the repayment period
  • The interest rate on the mortgage 

Keep in mind that the quote will also be affected by factors like your payment history on the mortgage, the down payment made on the note, your credit score, and the property appraisal.

Property Evaluation

Once you have chosen a buying company, the real estate being used as collateral will be evaluated to determine the current market value, and a title search will be run to ensure that the title to the property is clear.

Appraisal

The real estate will be appraised to determine the current market value of the property. As property values can fluctuate considerably over time and geographic area, the appraisal amount will often vary from the sale price on the mortgage note.

Title Search

A title company will conduct a title search to ensure that there are no claims, liens, outstanding property taxes, or any other issues with the title that could prevent the sale of the mortgage note.

Close The Sale

Closing the sale is the final step in the process. After you sign the closing paperwork at a title company, the transfer of ownership of the mortgage note is official.

How To Find The Right Buyer

Mortgage notes can be bought by financial institutions, businesses, and private note investors. Unfortunately, there are many unscrupulous note buyers looking to take advantage of note sellers who need cash quickly. A reputable mortgage note buyer will provide you with a free quote before you sign any contracts or paperwork and will never pressure you into selling. You can also verify the legitimacy of the buyer with the Florida Bureau of Real Estate.

How To Get The Best Value From Your Mortgage Note

The value of mortgage notes can vary based on the type of real estate and the terms of the note. Consider the following when selling a private mortgage note:

  • Property with buildings and land will be worth more than land alone
  • Single-family homes are often worth more than condominiums 
  • Having a good credit score will increase the value of your note
  • Clear terms and conditions listed in the note and deed of trust will make it easier to sell

What Happens After A Mortgage Note Is Sold?

After your mortgage note is sold, you will receive the payment in your bank account. Congratulations! The process is complete.

Sell Your Mortgage Note With Us

Are you ready to sell your mortgage note? Apply now at Associates Home Loan of Florida. Our experts can answer any questions you might have about how to sell a mortgage note. We are here to help. Contact us today to learn more about selling your mortgage note.

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