A Guide To Selling
Mortgage Notes & Land Contracts

Did You Know Your Note Could Be Converted To A Lump Sum Payment?

Quick money for mortgage notes and land contracts
Private mortgage notes are created through the owner financed sale of real estate. If you sold – or are considering the sale of – property with owner financing, you left the closing, not with a check, but with a pile of paper, including a promise from your buyer to pay you in installments over a period of years. That promise might be called a private mortgage note, a deed of trust, land contract, or contract for deed, but even though there are important differences among them, they all mean waiting – a very long time – for your money.

Waiting may not have been a problem at the time you sold. In fact, owning a private mortgage note can give you a steady stream of monthly payments at a reasonable interest rate. But now you need a chunk of cash, not a trickle of payments.

Your note is a valuable financial instrument and, like stocks and bonds, has a cash value. In fact, depending on your specific needs, it can be sold in increments, netting you more cash – more quickly –- than the note's current principal balance.

The cash flow industry has note buyers for just about any contract or note that exists, but its largest category by far is real estate notes. Although there is no accurate way to measure their numbers or value, industry experts agree that privately-held real estate notes number in the millions with a total value in the tens of billions of dollars. And because they are backed by real estate, mortgage notes remain very attractive to investors, both private and public, who together have untold billions to buy them at every opportunity.

Why is this important to you?

In a word, "liquidity." While it is true that you can't walk into a bank or call a brokerage house to redeem your private mortgage note for cash, you can have a lump sum payment in your hands in a matter of a few short weeks. With so much available money and such a huge appetite for quality real estate notes, mortgage note buyers have become the industry's creative real estate financing experts, buying mortgage notes in a variety of flexible and innovative ways. In fact, a professional contract buyer or note broker can work with notes:

  • At any interest rate
  • For any term
  • With no payment history ("seasoning")
  • Up to 100 percent financing
  • Simultaneous with the sale of the property
  • Without checking the payor's credit
  • Currently in arrears or even in default!
To accommodate just about any seller, note buyers have programs for:

  • Whole note (full) purchases
  • A partial note purchase for a specific lump sum payment
  • A split disbursement partial, allowing you to sell a portion of each payment
  • The purchase of a balloon payment, either: full or partial
And programs to increase the total value of your investment, including:

  • 100 percent payout programs
  • Multi-stage payouts
  • Front loaded partials
  • Reverse partials
If your contract buyer cannot offer you what you need, a note broker may be your answer. Professional note brokers are known as the cash flow industry's creative real estate financing gurus because they can freely package the products of several different investors to craft unique solutions. You might even find a note broker who works with a private mortgage investor that offers exactly what you want.

How Do Investors Determine Their Value?

You may believe that your note can be sold for a lump sum payment equal to its current principal balance. With the help of a note broker, you may be able to find a private mortgage investor willing to pay you the face ("par") value of your note, but par value purchases are rare.


Remember that there are techniques note buyers can use to increase the total amount you receive for your note – even more than the current principal value – if you can be flexible.

Most private and institutional investors buying mortgage notes professionally value notes according to the long term "yield," or the return they require on each dollar invested. Note buyers call this the "Time Value of Money" which means my dollar today is worth more than your dollar tomorrow. To achieve its long-term-yield, the investor will discount the face value of a note, so your contract buyer or note broker will most likely be offering you something less than your note's current principal amount for a whole purchase.

Mortgage buyers determine the note yield and value according to the:

  • Security for the note (the property characteristics and value)
  • Note's current principal relative to the property value  (Loan To Value Ratio, or LTV)
  • Note's interest rate
  • Length (term) of the note
  • Payment schedule
  • Credit worthiness of the payor
  • Payor’s equity in the property
In addition, the investor may adjust the yield to account for other terms of the note that may affect its value. For example, if you offered your buyer an adjustable rate, interest-only payments, or a discount for paying the note early, most mortgage note buyers would adjust their required yield – and your discount – to compensate.
The value of your note is determined by when it's created. Even if you don't plan on selling it now, things can change. To cover yourself, consult a professional contract buyer or note broker before you go to settlement with your buyer to structure a note with the highest possible value to an investor.

Selling Your Private Mortgage Note: Step-By-Step

  • Gather all the facts about your note and property.
  • Find a professional contract buyer, note broker, or private mortgage investor you can work with.
  • Get a written purchase quotation for your private mortgage note. A quote will normally be a "net" price to you after deducting expenses and will be conditioned on your providing the required documents and the investor's review ("due diligence") of all the details.
  • Your contract buyer or note broker will package your transaction and submit it for processing. Expect this to take at least several weeks for a normal private mortgage note sale.
  • Assuming all the details pass the due diligence phase, you will be contacted to arrange for closing (many times, closing is done by mail).
  • You receive your cash!
The cash flow industry has made the buying and selling of mortgage notes a fairly straightforward process. A little preparation and care choosing a professional contract buyer or note broker – one who puts your needs first, rather than his own – will go far in ensuring a smooth and pain-free transaction.

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