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| Promissory Note Facts Establishing the Market Value of a Note
- Every note, mortgage, trust deed, land contract, or contract for deed has a unique market value.
- The market value of a note is the highest cash price an informed and proactive seller can sell it for on the open market.
- The market value of a note will be something less than the outstanding principal balance remaining on it.
- The market value of a note is inversely related to the general interest rate environment.
- There are a number of important factors that determine the market value of a note
- The type of property
- The value of the property
- The amount of owner's equity
- The current note balance
- The interest rate
- The number of payments made and remaining
- The general credit history of the borrower
- Your experience receiving payments
Benefits of Selling a Note
- You will convert your long-term investment into cash.
- You will receive a substantial amount of money right now - enough to accomplish some major goals.
- When you have cash and are liquid, you can handle emergency situations, take advantage of quick investment opportunities and are in a better position to negotiate the purchase of anything you are buying.
- You will be able to pay off credit card and other debts that are charging a higher rate of interest than your note is earning.
- You won't have to worry about the payments you receive each month slipping away on life's little expenses. You will be able to retain this money to be used on something important in the future.
- You won't have to worry about whether the property taxes or insurance premiums are being paid each year.
- You won't have to worry about whether or not the borrower will continue to make his or her payments.
Selling a Note- Almost every note can be sold, even notes where the payments are late or not being made.
- There are a number of substantial companies that purchase notes, mortgages, trust deeds, contract for deeds, and land contracts. Together, we make up an active and competitive market for them.
- Note holders have a number of sale alternatives available to them; each can be tailored to meet a specific goal of the seller.
- The following needs to occur before a note sale can close:
- All documents need to be reviewed.
- A 12-month payment history needs to be reviewed.
- A credit report on the borrower needs to be reviewed.
- An appraisal must be completed on the property.
- A title insurance policy must be reviewed or purchased.
- A homeowner's insurance policy on the property needs to be reviewed.
Creating Your Mortgage Note To Sell To Note Buyers
Every note buyer has their own criteria that determine what they will or won't buy, but a down payment of at least 10% is a good minimum figure when creating a note. This upfront payment immediately creates equity in the property which acts as the buyer's safety net in a foreclosure. A competitive interest rate is important because it will make it easy for the buyer to purchase the note and yield the desired profit without much of a discount to the note holder. Finally, keep in mind that people typically avoid notes that do not follow a traditional term (amortized over 120 months, 180 months, etc). A two-year, interest-only balloon term is a perfect example of a note that many note investors would purchase.
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