In the last year or two, about 90% of newly created seller carryback notes in the United States have been dubbed “Mom and Pop Notes” in the note industry. This simply means that the folks who created these notes were selling a home or property they owned, and in order to facilitate the sale, they agreed to carryback the note. They are not investors. They may never do another seller carryback in their lifetime.
Most of these notes will not live out their term. Some will be paid off early because the buyer was able to obtain bank financing. Some will be sold on the secondary market to a professional notebuyer. And, sadly, some will default. The seller will experience the pain and expense of taking back the property, perhaps rehabilitating that property, and going months without receiving any payments. He may decide to sell the property to an investor, rent it out, or sell to a buyer who can get bank financing. In some cases, the seller may decide to move back into the property.
Seller financing involves risk. Hopefully, caution exercised by the seller helps to minimize that risk. In this Blog and my Newsletter, I have written many times about the need for a seller to have a good understanding of the buyer’s credit worthiness and to design terms that protect the seller and lessen the possibility of default.
The real work begins after the buyer moves into the property. The seller needs to manage and monitor, and head off potential problems before they escalate into disaster. One of the tools that can help is a Note Owner’s Manual. Many brokers and buyers in the note industry have their version, offered for free or at a minimal price. Mine is Free and consists of 34 pages of hints, suggestions and advice designed to keep a seller and his buyer on the straight and narrow. The last several pages are a Record Payment Keeper to be used even if a 3rd party servicing company has been retained.
If you are a seller or thinking about becoming one, just contact me and I will be happy to send it out to you. If you are a professional advisor and have clients who could use a Note Owner’s Manual, let me know and I will get it to you as soon as possible.
