A mortgage note is actually two things (1) a promissory note or a promise to pay and (2) a security agreement such as a mortgage in Kansas or a Deed of Trust in Missouri that is recorded in the public record. The security agreement spells out how the lender can regain control of the collateral, usually a house or other real estate. when someone lends money to someone else. We see these when someone like Bank of America or Wells Fargo lends money to someone to buy a house. In this blog post, we are referring to Seller Financed Mortgage Notes, where the lender is usually the owner of the house who rather than actually lending money, is agreeing to get their sales price for their home over time through monthly principal and interest payments.
So let’s look a little closer at what a mortgage note is and how to sell yours in Kansas City.
Why Private Mortgages
The main reasons for the rise in private mortgages are primarily stricter lending requirements. Back in 2008 and 2009, the government decided that the big banks took advantage of a lot of people so they created a lot of new rules. Namely the S.A.F.E. Act and the Dodd-Frank Act. These put a lot of new requirements on the banks and private lending institutions and even on homeowners who seller finance more than 3 houses in a yea. All those rules and regulations made it much more costly for lenders to lend. And the costs are fairly much the same for a $20,000 loan, a $100,000 loan or a $250,000 loan. But the returns on the larger loans are much more significant than the returns on the smaller loans. And being good managers of time and money, many lenders said why spend the money on the small loans when we make so much more money on the larger loans.
So right now the banks and lending institutions are not making a lot of loans on the lower priced houses and a few other types of housing, like mobile homes. So if a seller wants to sell these types of homes, they either need to find a cash buyer, find a buyer who has a private lender (like we have here at kcmoHomeBuyer) or they need to finance the property themselves. And sometimes when they seller finance their property to get it sold, they would still rather have the money now.
Risks of a Mortgage Note
Although a mortgage note can be an easily liquidated asset, there are certain risks. First, because the note holder is acting in the same role as a bank, that person assumes the same risks a bank would. There is, of course, the benefit of earning interest, but there is always the potential for the borrower to default. So, if you have seller financed a property, here are a few questions you need to ask if you’re trying to decide between continuing to hold the note or sell it in Kansas City:
- Is the property likely to depreciate owing to neglect or a bad location?
- Will your financial situation be threatened if the borrower is late on payments or defaults entirely?
- Is the borrower (or homeowner) carrying the proper insurance so that you will be covered in the event of some disaster?
- How hard is it to foreclose?
Why Sell Mortgage Note
One of the great advantages of owning a private mortgage note is that you can usually easily liquidate it by selling it to a company that specializes in such purchases. We buy a few mortgage notes from time to time.
You can sell the entire note or a portion of it depending on your financial need. Common reasons for selling a mortgage note include:
- Getting out from under risk and worry of the borrower defaulting
- Desiring a different investment
- Paying college tuition
- Divorce requirements
- The need to divide an estate
- Needing capital to start a business
How to Sell Mortgage Note
Owing to the increase in private mortgages, there are now many investment businesses in the secondary mortgage note industry willing to purchase your mortgage note. If you do decide to sell your mortgage note in Kansas City, here’s what the process involves.:
- Gather all the information and documents concerning your note: property information, promissory note, interest rate, payment history, borrower’s creditworthiness, and so on. The more information and documentation you can assemble, the better off you’ll be.
- Provide all the pertinent details to a company that purchases mortgage notes and get a quote.
- Consider the quote, accept or decline the offer, and submit the contract.
- Wait for the investment company to complete the due diligence and be prepared to verify previously submitted information.
- Close the deal and receive payment for the contracted amount/portion of the mortgage note.
There actually are no constraints on what amount of the note you can sell. It can be the entire mortgage note, a specific amount now and then payments again later, or a percentage of each scheduled payment. So selling a mortgage note in Kansas City is fairly complex and can be somewhat confusing. However, we do buy mortgage notes and can provide the assistance you need.