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Selling and Buying Real Estate Notes
Sale of real estate notes raise cash quickly. A real estate note is the loan document created to finance sale of the owner’s house or investment property. It could be a mortgage note or a land contract or contract for sale whereby payments are made in cash by the buyer.
Guidelines When Dealing with Real Estate Notes
A risk involved is that while a seller won’t get the full face value for his note there could be other fees needed to be paid. Questions arise such as whether there is a normal discount on a note or whether the buyer is trustworthy. Some guidelines for these are:
1. There should be no upfront fees. Certainly there will be some buyers who will check on the buyer’s credit and give a note without charging any fee.
2. Some exceptions could have a fee. The property owner may have to pay for the title policy if there are problems with the title that prevent purchase. There may be an appraisal payment if the property appraises at less than the sales price.
3. It is necessary for the note buyer to give a written purchase agreement with the purchase price and contingencies. All clarifications should be made in case of any doubt.
4. The note buyer should check the credit of the property buyer upfront. Fraudulent buyers can quote one price initially and then lower it later claiming that the property buyer has bad credit balance.
5. Several note buyers should be contacted for quotes. With information provided on the type of property, sale price, payment amounts, current balance etc., there should be a response within a day or two.
6. When a quote is selected, copies of the Mortgage or Deed of Trust, the Note, the closing or Settlement Statement and the Title policy will have to be sent.
7. The property owner should ask about the processing time. Usually once the offer is agreed upon and documents sent over, a certified check or electronic transfer to the account is expected within two or three weeks.
Getting the Maximum on Real Estate Notes
Prices offered on notes vary. Those with balloon payments get a higher price while ‘seasoned’ notes sell for even more. Some note buyers like to buy new or ‘unseasoned’ notes. After six payments these notes get a much higher price.
By deferring the sale of a house to the future as higher interest rates and shorter loan periods would fetch more money. Note buyers consider second mortgage notes and other second place real estate notes differently. The latter cannot add up to much more than 70% of the property value. If there are discounts they are likely to be steep by 20% to 30% less than the current balance on the note.
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