Selling Your Note?

Often a note holder wishes to sell their note but is just unfamiliar with the process of the transaction.   Required documentation is what every note holder should have ready when they have made the decision to sell their owner financed mortgage.   In this article, we will outline all the required documentation and how it relates to taking the deal to closing and collecting that lump sum of cash in exchange for their seller financed note.  

First and foremost, is submitting a copy of the note and its amortization schedule.  This will be used to confirm all and any information that was given over the phone or in person.  It will establish credibility between the buyer and the seller in addition to showing the terms of the note and its date of maturity. Buyers will also use this document to pull credit on the payor(person living on the property who is paying the monthly bill to the note holder) to find out their  credit score which is one of the main factors in pricing the note.  If the credit score of the payor is low, this will affect the quote given to a note seller resulting in lower numbers for the client.   Some buyers will refuse to do a deal if the credit score of the payor is considered too low.  Most buyers will want the payor to have an average credit rating of 625 or better.  The amortization schedule connected to the note will show potential buyers all the required payments, due dates, along with an end date or date of maturity.

The next required document a note seller will need to submit is a copy or proof of an existing title insurance policy.  The buyers will update the policy if one already exist. If one does not exist, the buyers will purchase a new title insurance policy with the cost coming out of the proceeds to the client.  This is required since this is the only protection the buyers have in retaining the title in the event the payor ever defaulted or walked from their financial responsibilities. Proof of a home owner’s insurance policy is also required for the deal to go to closing.  This protects the buyer’s investment from things like natural disaster.  Scanned copies of most of these documents are usually acceptable to keep the deal going through processing.  

The next document buyers would want to see is a “note analysis worksheet” on the property which outlines details of the note like address, appraisal of property, interest rate, payments made, are they made on time, are there any liens on the property, etc.   In addition, a 12 month payment history of the the payor would be required.  Proof of this history is best shown by copies of cancelled checks the payor made monthly on the property which should be easily obtained from the bank the checks were deposited.  A credit check on the payor is also done to give the buyers an accurate assessment of whether the payor will keep his end of the bargain by paying consistently every month on time. Usually buyers are looking for a credit score of 625 or above but will work with credit scores as low as 500.

After all this paperwork is submitted, the buyers will send out an appraiser to insure the current value of the property.  If the appraisal checks out will the information given on the “note analysis worksheet”, the deal will now proceed to closing.  The seller of the note would be informed of a closing date and local title company they would personally go to signed closing statements, hand over any original copies of the note, and collect their payment for the note. The most common thing that slows down most note deal payoffs is the speed at which the documentation is sent in by the note holder.  If they drag their feet about sending in paperwork, it just delays the process.  Most deals are concluded in 30-45 days but with all the proper documentation sent in all at once, payoffs can be in as little as 15 days.  The key as always when getting the best price for your note is to shop around for the best broker that will get you the best price for your note.