Get Cash For Your Payments

Convert Your Real Estate Note Payments Into Cash

So you sold your property and took a real estate secured Note as payment. You collected some payments from your borrower. But now you need a lump sum of cash for something else. There are multiple ways to go about it. Your 2 most common options are:

1. Sell the entire Note outright. You'll be selling all remaining payments on the Note for a lump sum now.
    
2. Sell a partial set of payments. You'll get a smaller lump sum of cash now and forego certain number of forthcoming payments (for example, 36 or 60 months) that will be collected by a Note buyer. After the Note buyer finished collecting his share of payments, you will still collect all the remaining payments. Sort of like "have your cake and eat it too". 

Got A Note With Payments You'd Like To Cash Out (Full or Part)?

Call us at 512-773-5673 to review your scenario. Or visit our Sell Now page to submit preliminary information about your Note and what you are trying to accomplish. We'll get back with you shortly.

Please review some background information below to understand the factors that influence valuation of your Note.
Not all notes are created equal. There are fundamentally 2 types of mortgage notes that are originated: conforming and non-conforming.

Conforming Notes

Banks and conventional mortgage lenders go through a fairly extensive paperwork to documentn loans prior to origination that include property appraisal and rigorous borrower qualifying processes - before they hand their money over to a title company to fund a loan. This is done to insure compliance with certain FNMA "conforming mortgage" guidelines.

Conforming mortgage Notes are traded at face value between various institutional investors like banks, Fannie Mae & Freddie Mac.
In other words, a performing (current on payments) conforming mortgage Note is pretty much the same as cash. It can be easily converted into cash (barring any economic disasters like The Great Recession of 2008.) 

Seller Financed Mortgages

A seller financed mortgage is a completely different beastie. It falls into a category of non-conforming loans.

Seller financed mortgages are often created out of the need of homesellers to get their properties sold within a time-table sellers are working with. Otherwise a sale to a buyer qualified for a conventional loan may not be feasible at a price seller is targeting or based on the condition the property is in.

Here are main differences of a seller financed mortgage note from a conforming note:

• Legal documents for seller financed mortgages are prepared by variety of attorneys and can vary substantially in the legal language included in them. Some terms can be slanted to benefit a buyer-borrower, while others may tilt in favor of the seller. 
• The amount of cash down payment sellers are willing to accept from buyers could vary from $0 to 50% of the sale price. 
• Buyer's creditworthiness  (their credit score) depends on what seller is willing to accept and verify. Buyer's credit often can vary from poor (FICO score in the 500s) to superior (FICO in 700s-800s). 
• Buyer's income and ability to make scheduled payments may or may not be verified by various sellers. Verifications, if any, often are limited to work payment stubs for a few months and rarely require buyers to produce 2 years worth of tax returns, customary for conforming loans.
• Property condition can vary from a fixer-upper sold "as is" (that wouldn't pass conforming lender requirements) to a  newly remodeled home in pristine condition.
• Documentation of buyer's payment history could vary dramatically. Some note holders have poor in-house collection system that amounts to not much more than "I just got a log of payments in my Excel".
  
  Other note holders take a high road and transfer payment collection to a reputable 3rd party servicer. Such note servicer likely utilizes a systematic, law compliant process.
  
  Such process can include collection of escrows for taxes and insurance, verification and enforcement of tax payments and insurance coverage, billing of late payments, providing monthly and annual statements and end-of-year 1099 interest statement to the borrower, online portal for access by customers and note holders, and more.

Factors Affecting Value of the Note

To begin with - the more complete documentation package you have, the easier it will be for a note buyer to evaluate your Note.
The main factors affecting the value and desirability of your Note are:

• Buyer/borrower Creditworthiness: A high FICO credit score (680+) and documented income usually translate into a more predicable positive payment history.
   
• Cash Down Payment Paid by Buyer at Closing: 5%-10% is considered risky.  20%+ cash down is usually a sign of a big commitment to the property on the part of Buyer. 
   
• Current Loan-to-value, or LTV: 70% LTV is pretty safe. While LTV of >80% is considered riskier, especially in a market where prices are sliding down.
  
  Current LTV is a ratio of the current unpaid mortgage note balance to the curret value of the property. Current LTV could often be different from the original LTV at the time of sale.That's because the principal balance is usually reduced over time, while property values can fluctuate Up or Down with the changes in the local market.  LTV of 60% or less is very safe.
   
• Interest Rate: The higher the better (as long as it's not usurous).
   
• Payment Amount: The higher the better (as long as borrower can afford to make it; this is usually established during a qualifying process prior to selling the property with owner financing).

• Amortization Term: The shorter the repayment term the better (money returns back with interest sooner; but not too short as to earn at least some minimum amount of interest).

• Presence of a Balloon Payment: Balloon that is too close in time to the mortgage orignation date with a high LTV Note could be risky. A payor may not be able to sell or refinance the property within that time.

• Condition and Location of the Collateral Property: Important in foreclosure, repossession and liquidation of the property. Properties in bad shape or poorly located may be hard to resell to recover the funds.  

Is Your Note Sellable?

Very few property owners who sell with owner financing go through a funding process that is anywhere near as complete as one outlinned above for conforming mortgages. In truth, the origination process doesn't have to be that complete.

However, to be sellable (or marketable) the Note has to at least conform to certain minimum requirements. This makes its purchase a less risky endeavor for a Note buyer. 

These requirements include:

• Note is Legally Enforceable - Note and Deed of Trust documents are prepared by a competent real estate attorney with proper disclosures to Buyer/borrower

• Note is Properly Secured - Immediately after closing a lien against the property is recorded as Deed of Trust in the county records where property is located

• Lien Priority is Insured - Lender's title policy must show your lien in a senior  position with no other liens recorded prior to it. If it's a "wrap" note it has to be made clear through loan documents and title policy.

• Note Has a Legitimate Property as Collateral - Ideally you sold a property with a valid legal description approved by county/city, a part of a recorded county subdivision with a plat map.

• Collateral is protected - Buyer must have an active hazard policy insuring the improvements up to the market value of improvements as well as flood insurance, if the property is in a flood zone

• Compliant Note Origination Process -  Hopefully, you  complied with various mandatory disclosures and consumer protection laws for mortgage financing such as SAFE Act, Dodd-Frank Act, Respa Disclosures, etc.

• 3rd Party Closing - Closing of the mortgage handled by a title company or a real estate attorney's office licensed by State to close such transactions.

• Settlement Statement - You must have a copy of a HUD settlement statement signed by buyer and seller showing the price paid by buyer for the property, cash down payment and all other customary items on the HUD, including tax certificates showing property taxes paid & current at closing.

• Good Records - You must have legitimate records documenting payments from buyer and corresponding deposits into your bank account (not just an Excel file with a list of payments you received.)

Some of the missing items on the list above can be fixed post-closing. Other helpful documents, though not mandatory, will enhance your Note package.

For example: an appraisal of the property establishing its value, a survey, deed restrictions, HOA documents (if the property is subject to an HOA), a servicing agreement with a 3rd party servicer who handles collection of payments from your borrower and keeps records, etc.

Unsellable Notes

If your Note doesn't at least address some of these basic points, what you likely have is "bad merchandise".
With poor loan closing process and incomplete documentation:

• Your Note is going to be difficult to enforce 

• Foreclosure in case of non-payment by borrower can be problematic 

• You may be subject to litigation from buyer for violations of government regulations listed above 

• You may be a subject of legal action from regulatory agencies 

• Your collateral may not have any value or may be un-sellable if you have to go through foreclosure, etc.

All that, in turn, means your Note is probably unsellable. You may be stuck collecting payments on it for as long as Buyer is paying. Sometimes a high risk-taking Note buyer may purchase your Note, but will likely pay a heavily discounted price for it. 

Got A Note With Payments You'd Like To Cash Out (Full or Part)?

Call us at 512-773-5673 to review your scenario. Or visit our Sell Now page to submit preliminary information about your Note and what you are trying to accomplish.