Mortgage Notes: Tips for Selling to a Private Real Estate Investor

Mortgage notes are legal documents connected to a mortgage loan. It records the promise to repay borrowed funds used to purchase real estate. Also referred to as a promissory note, mortgage notes include specific information regarding the amount of money borrowed, rate of interest and who is responsible for repayment.

Individuals who possess mortgage notes can sell them to mortgage note buyers for a lump sum of cash. There are numerous reasons people choose to sell their notes to a private investor. However, the most common include obtaining funds to pay off debt, medical expenses or finance college tuition. Private investors who purchase mortgage notes will pay cash to the note holder in exchange for receiving monthly payments originally paid to the owner of the note.

The first step to selling mortgages notes to an investor requires providing specific information about the note. The investor will need to know the face value, balance due, interest rate, number of payments made, whether the note is current or delinquent and asking price for the note.

Once the real estate investor has reviewed the mortgage notes for sale, he will make an initial offer. Should you accept the offer and continue with negotiation, you will need to provide additional documents such as current year tax return, pay stubs or income statement, title insurance and amortization schedule.

The next step of selling mortgage notes requires obtaining a real estate appraisal. This can be accomplished by hiring the services of a professional appraiser. Some private real estate investors will cover the cost of the appraisal; however, this expense is usually paid by the note holder.

Occasionally, a "drive-by" inspection may be all that is required. Be certain to specify the type of appraisal required and who is responsible for the cost prior to entering into a contract with a private investor or mortgage note buying company.

Once the appraisal is complete, the final step of selling mortgage notes involves closing the deal. The primary document signed at closing is known as an Assignment of Mortgage. This document transfers all or part of future payments to the investor. Assignment of Mortgage documents must be recorded at the local courthouse and all closing conditions met prior to the disbursement of funds.

The original security instruments remain in the note holder's name. The Assignment of Mortgage agreement outlines the number of payments which have been sold. In the event of a partial sale of payments, a Partial Purchase Agreement will be drafted. Once the terms of the partial agreement are met, the mortgage balance or agreed-upon amount reverts back to the original note holder.

Final closing can take place in person or via mail. When completed in person, the note holder receives a copy of the closing documents prior to the meeting. The owner of the mortgage notes must bring original copies of security documents including the Deed of Trust, mortgage, and Contract for Deed of the property being sold. Once everything has been approved, the investor will issue a check or wire transfer funds directly to the note holder. Selling mortgage notes to a private investor can take a few weeks to a few months to complete. Much depends on the circumstances and amount of the transaction.

Engage in due diligence when seeking out private real estate investors. Conduct research to ensure you are conducting business with a professional who possess integrity. Ask for references and contact individuals who have worked with the investor. Check with the Better Business Bureau to see if any derogatory reports have been filed.

Last, but not least, when selling mortgage notes to a private investor do not hesitate to ask questions and engage in numerous conversations. A reputable note investor will be able to answer your questions, provide references and be fair in their negotiations.