Selling your mortgage note is not all about or just about price. It is also about working wit a buyer who will follow through and actually close at the agreed price. If you have a note to sell and you are not sure who to call, who to trust or what to look for yo will want to watch this short 9 minute video
What’s My Note Worth?
A question all note sellers have and have a right to know.
Timing Your Mortgage Note Sale is everything.
So, when is the correct time to sell your mortgage note?
The following utube video with my friends Walter Wofford and Jim Ingersoll is so to the point as to the value of trusts in any form of a real estate transaction.
They discuss the ultra importance of transactional privacy and how that helps with asset protection.Under what circumstances would you want the general public to know the properties you own?
Trusts provide privacy and effectively separate all of your investment assets. They are not hard to use and provide tremendous privacy in your deals as a trustee is used to hold title and the trust agreement is not recorded at the courthouse.
Under what circumstances would you not like the public to know that you own a property?
What are the benefits of using trusts?
1. Privacy – Keep your name and LLC out of public records
2. Liens and judgments
3. Probate benefits
4. Sell the entity, not the property
5. Personal property trusts for IRAs, cars, boats, etc
Today I cam across this article title,” The Three Ds of Doom: Debt, Default, Depression”. Without sounding negative, it certainly makes one think about the current economy. Everything appears to be booming, at least here in the greater Phoenix Metroplex. But………..what is under the covers. What goes up always comes down. It is a fact of life. Now apply this to the niche business. It is the paper side of real estate.
In the very near future, Capstone will be launching a Utube note training series on buying Notes. One of the topics as part of the due diligence series will be a deep dive into Investment to Value and Loan to Value. In other words, what is the note buyers safety net in the event of a downturn. How to minimize the pain in your portfolio. The only way I know is to have an EQUITY SPREAD. For instance, if a note has a $100,000 unpaid loan balance (aka UPB), what is your risk tolerance. What safety net do you require? The Capstone safety net is an Investment to Value (ITV) not exceeding 65% and a Loan to Value not exceeding 70%. Some say this is too big a filter. I guess time will tell. Anyway–moving on to the article.
The Three Ds of Doom: Debt, Default, Depression
July 17, 2019
“Borrowing our way out of debt” generates the three Ds of Doom: debt leads to default which ushers in Depression.
Let’s start by defining Economic Depression: a Depression is a Recession that isn’t fixed by conventional fiscal and monetary stimulus. In other words, when a recession drags on despite massive fiscal and monetary stimulus being thrown into the economy, then the stimulus-resistant stagnation is called a Depression. Read more
The August 7th Note Investors Forum Meetup focus on:
TOPICS: Several New Case Studies
Where Does a New Note Investor Begin
Bring your questions, This will be an interactive meeting.
The Next Note Investors Forum Meeting will be
Wednesday, August 7th 11:30am-1:30pm
La Famiglia Restaurant, SE corner of Dobson & Guadalupe, Mesa
If a person wants to become a homeowner but lacks the qualifications to qualify for a traditional mortgage, signing a land contract is another option for purchasing property.
A land contract is a written agreement between the seller of the property and a potential buyer. Instead of taking out a mortgage and making payments to a bank, the buyer makes payments to the seller. But the seller retains ownership of the property until the buyer pays the entire purchase price. The land contract is essentially a type of rent-to-own agreement.
When a land contract is convenient
People can use land contracts to buy or sell any type of property, including personal residences, commercial buildings and land. There are several common situations where a buyer and a seller might use a land contract instead of going through the conventional mortgage process:
- The buyer lacks the credit, down payment or income that traditional lenders require.
- The seller needs to sell a property as quickly as possible.
- The seller prefers to accept payments in return for a higher sale price.
A land contract provides quite a bit of leeway when it comes to the conditions of the sale. Some of the items that the buyer and seller have to agree on include:
- The down payment.
- Length of the contract.
- The interest rate.
- The final sale price of the property.
Sellers may allow buyers to make regular payments on property over a certain period of time, or they can demand a balloon payment after a specified amount of time. For example, the contract might state that the buyer has to pay off the entire sale price within five years. During the five years, the buyer could take steps to improve his credit and secure approval for a conventional mortgage.
On average, it takes 65 days for a home to sell. If the seller doesn’t want to wait this long or fears that a bank may turn down a mortgage for the property, the seller can opt to sell it with a land contract. Lenders may not agree to a mortgage for a property that requires extensive repairs or doesn’t meet other criteria. The seller has the option of selling it through a land contract instead of making the improvements or repairs.
Real estate markets constantly fluctuate; in a down market, the seller can often get more money for the property by offering a land contract. Buyers are typically willing to pay a higher overall price in exchange for seller financing.
Risks of buying or selling property with a land contract
A land contract has disadvantages for both the buyer and the seller.
A buyer who purchases a home with a traditional mortgage accumulates equity as he makes payments. He also gets to take advantage of gains in the housing market that raise the value of the house. Should the buyer decide to sell the property before the mortgage is paid off, the buyer still gets to realize the equity in the home.
However, if the buyer uses a land contract and decides he doesn’t want to remain in the home, he has no equity, even though he has made payments, a down payment and the home has risen in value.
It’s important to note that the courts consider the buyer an equitable titleholder to the property. This means that the buyer has an interest in the property, which prevents the seller from completing any actions that disrupt the buyer’s potential claim to the property.
A seller in a land contract has to assume the risk of a mortgage lender. There’s always the possibility that the buyer may not make the agreed-upon monthly payments. This is one reason that buyers usually pay more for property bought with a land contract.
The seller can file a land contract forfeiture in court that basically evicts the buyer and terminates the buyer’s interest in the property, but this option takes time. However, the seller gets to keep all payments made by the buyer and retains ownership of the property.
Accepting payments on the sale of real estate might have made sense at the time, but circumstances change.
Many sellers discover they would now prefer cash today rather than the small amount that trickles in each month.
Here are just a few reasons people have sold all or part of their seller financed mortgage notes for cash:
Owner Financing doesn’t have to mean waiting years or decades to receive money.
Sellers have the choice to sell all or just part of their future payments for cash today.
Option 1 – When note buyers purchase all the remaining payments on a land contract, mortgage note, or trust deed it is considered a full purchase.
Option 2 – When the note buyer purchases just a portion of the remaining payments it is considered a partial purchase.
Want top dollar when selling mortgage notes?
Increase the value with payment histories!
Keeping an accurate record of the payments received on a mortgage note is essential for knowing how much the buyer still owes. This also establishes a record of their payment habits – with an added benefit.
The value of a note can be improved by presenting note buyers a verifiable payment history!
There are two main ways to keep track of payments on seller-financed mortgage notes: 1) outside serviced, or 2) seller direct.
Professional Mortgage Note Servicing
The first and easiest is to let a professional handle it. The payments are made to a third party servicing agent that keeps track of the balance and sends the money along to the seller. They will also send out the annual 1098 Mortgage Interest Statements and can hold original documents in safe keeping.
The DIY Approach to Collecting Payments
If a seller chooses the “Do-It-Yourself”’ method over a third party pro they will need to follow these steps:
1. Place original note and other original documents in a safe deposit box.
2. Make a copy of each check or money ordered received. Accepting cash is not recommended since it is hard to verify the payment history without a paper trail.
3. Deposit the payment and keep a copy of the bank record of deposit. It is best to deposit each payment separately rather than combining with other checks.
4. Create a ledger or spreadsheet reflecting the date and amount of payments received.
5. Calculate the amount applied to interest, principal, late fees (if any), and the resulting principal balance. An amortization schedule or financial calculator can be helpful. Once calculated, record in the ledger.
6. Send out an annual statement to the buyer or payer along with the IRS1098 Mortgage Interest Statement.
7. Verify the real estate taxes and property insurance are being kept current. Consider establishing a tax and insurance escrow where the buyer pays 1/12th of the annual amount into a reserve account each month.
8. Send collection letters as necessary for late payments, lapsed insurance, or delinquent real estate taxes.
Why Note Buyers Want Payment Histories
When an investor agrees to purchase a note they will request a payment history. A verifiable payment history can improve the value of a note as it provides proof of timely payments. A payment history is considered verified when it is either provided by a third party or is backed up by the documents and records outlined above.
Unfortunately many sellers fail to keep track of the payments received. When they go to sell the note, contract, or trust deed they try to recreate the history from memory. Without any proof of payments received, a note buyer has to go on faith. Sometimes a payment history affidavit can substitute for a payment record but it still doesn’t add the value of verifiable proof.
Protect the value of your mortgage note! Set up a payment tracking method today.
(Payment Histories Increase Note Values)
Wondering just how much your mortgage note is worth? (Learn the Value of Your Mortgage Note)
The value of a note or contract is affected by many factors including the:
- Down Payment
- Terms of the Note
- Buyer’s Credit Rating and Payment History
- Type of Property Sold and Its Current Value
Since each transaction is unique, we offer a free note analysis based on your individual situation.
Fortunately it is easy to obtain a free evaluation in 3 easy steps:
Step 1 – Gather Copies of Documents
The first step is to gather copies of the documents. The primary documents utilized in the quoting process are:
- Settlement Statement
- Mortgage (Deed of Trust, Real Estate Contract etc)
- Promissory Note, and
- Payment Record
Hopefully copies are easily accessible with the originals located in a safe deposit box or other secure location for safekeeping. If a seller later decides to sell the payments then the investor will ask for a few other documents plus the appropriate originals at closing. But for now these copies will be reviewed for an accurate quote.
Step 2 – Complete the Quote Request Worksheet
The Quote Request Worksheet, also known as a Mortgage Submission Worksheet, is a simple single page form. This worksheet summarizes the transaction with most of the information obtained from the document copies. It includes details on the property type, buyer, repayment terms, and current balance. (Please visit the Quote Request and Free Note Analysis page to print a PDF version of the worksheet or to submit online).
Step 3 – Send for Review
The third step is to submit the worksheet and the document copies to an investor for pricing. Depending on the investor this might be submitted via email, fax transmittal, or an online submission process.
Most note buyers will provide a free no obligation quote within 48-72 hours. The quote is generally good for 30 days and is subject to due diligence, which includes review of the title, appraisal, insurance, buyer’s credit, and other underwriting items. The more information an investor has up front the fewer “subject to” items they will include with the evaluation.