How To Sell a Real Estate Note
1) First you should determine your current and future cash needs and financial condition. Since you can sell the entire note or just a partial amount, you should have a specific required amount in mind before you contact any buyers. It is recommended that you consult a financial advisor or lawyer.
*Tip: You will receive more cash for 1st lien notes versus 2nd lien due to the higher potential recovery rate for 1st liens.
*Tip: While you can sell only part of your note, selling the entire note is generally easier, less confusing, and preferred by many buyers.
2) Gather all your real estate note documentation. While you will not need most of the documentation to get an initial quote, it is good to have it ready should you decide to sell your note. Documentation for an initial quote may include:
- Property type, location, pictures
- Sale price, loan amount, terms and conditions
- Payment amount, interest rate.
*Tip: There is no need to send all your documentation for a quote, be wary of requests to gather too much information(like your Social Security information) for a initial quote.
3) Search for a buyer of real estate notes. It is very important to feel comfortable with potential a buyer. Please see "Due Diligence" for tips on selecting a buyer.
There are a number of ways to find a potential buyer:
- talk to your financial advisor or lawyer,
- use this site to identify potential buyers,
- search the Internet,
- talk to friends, family, or acquaintances who have sold a real estate note.
5) Get multiples quotes for your real estate note. Potential buyers will generally give you a free analysis and no obligation quote for your note. They should explain all potential options and provide an amount that you will receive. While the highest quote may be attractive, you should consider all the factors together. These factors include: reputation, experience, your comfort level, etc.
*Tip: Ask the buyer up front about all costs and who is responsible for paying them. Generally all fees should be included in the quote and paid by the buyer.
*Tip: Beware of potential buyers who ask for a fee up front. There should be no fee for a quote or analysis.
6) Once you have selected a buyer, you should execute a contract (purchase agreement) with the buyer. This contract should outline the terms and conditions of the payment and agreement.
*Tip: It is strongly advised that you have your lawyer review this contract.
*Tip: You should not be required to guarantee the note which means the new note should be "without recourse or non recourse". Meaning you are not personally liable for the note re-payments, if the property owner defaults.
*Tip: Make sure the potential buyer has checked the credit of property owner early in the process to avoid any surprises later.
7) Now the information gathering process will begin. The potential buyer will request specific information about your real estate note. This process can last between 2 to 7 days.
*Tip: Request to see the buyer's privacy policy.
Information requests can include:
- Deed of Trust or Mortgage, the original not a copy.
- Title Policy, and Closing/Settlement Statement
- Proof of Fire / Hazard Insurance, evidence of down payment
- Exact address, map, and/or legal description of property
- Recent appraisal, photographs
- Payment history, collection or servicing agent information
- Your and the property owner's (note payer) personal information
- Insurance agent
- Lawyer or financial advisor's information
8) Once the buyer has all the required information, they will begin a due diligence process. This process usually lasts between 2 to 4 weeks, depending on the buyer and complexity of your note and property.
*Tip: Ask the buyer up front about the process and time to completion. Be cautious of very short process times.
9) When the due diligence is complete, the buyer will generally issue payment within 2 to 7 days.
Congratulations! You sold your real estate note.
*Please note: these are general guidelines, all situations are unique and vary by state and company.
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