You are selling a property and agreeing to carry the note. You are negotiating all the terms. You have not done this before. You are anxious and a little unsure. So, be calm but Learn To Say No.

You may be tied to this property for anywhere from 5-30 years. Yikes! So, just let common sense and your gut instinct be your guide:

1. Say NO to little or no down payment
2. Say NO to an interest rate below 5%
3. Say NO if your potential buyer is unwilling to provide his credit score and history
4. Say NO if your potential buyer has a rocky employment history
5. Say NO if your gut just tells you something is not right

Say YES when the terms are fair and strong, you have met all the people who will live in the home, and your gut tells you Let’s Move Forward!

In a recent Wall Street article, J.P. Morgan, the largest mortgage lender in the United States, announced new loan underwriting requirements. A borrower will now have to provide a 20% down payment and have a minimum credit score of 700. These new rules are a response to the Coronavirus Pandemic and the economic shutdown.

As a result, many otherwise qualified borrowers will turn to the seller to provide the financing. This will present a great opportunity for both parties and will help stabilize the housing market.

Feel free to call me to discuss your situation before you agree to any terms.

The note buying business is a small niche in the real estate industry. Most of us know each other. What should you expect from us when you are deciding to sell your note?

You should expect someone who is professional, experienced and gives you the feeling that he is knowledgeable and trustworthy. You should expect that he is licensed appropriately in his home state ( California requires a Real Estate Broker License – I am studying for my Renewal License Exam as I write this). You should expect someone who is concerned about your needs. You should expect someone who is willing to tell you the good and bad about your note situation and answer any and all questions. You should expect someone who is willing to provide you options, and in my case, someone who may present you offers from more than 1 note buyer/investor for your consideration.

You may sell only one note in your lifetime. If you don’t feel good about the person you are talking to, move on to someone else. There are a lot of really good note professionals in our business and you deserve to work with one of them.

Let me answer the question above by telling you a true story.

About 2 years ago, I was talking to a note holder who was interested in selling his note. He told me that several years earlier he agreed to rent his property to a family and provided an option to buy the property at a specific price. Part of the agreement was that every dollar the renter paid would go to the ultimate sales price. The agreement was drafted by an attorney of the renter’s choosing – not the note holder.

When I asked the note holder who was doing the record keeping, he said he had a receipt for every payment his renter/borrower paid and he told me the current principal balance. In reviewing the agreement, I could not reconcile his principal balance with what the agreement specified. The agreement indicated the balance should be $5000 higher. With a sales price of $100,000, $5000 was a significant number.

In discussing this differential, the note holder shared with me that he was too trusting and reluctantly agreed to allow his borrower to choose the attorney. It was clear to me that the error was the attorney’s, the parties just blindly accepted the terms and numbers in the agreement. The note holder spoke with his borrower, who refused to accept the higher principal balance and stopped making monthly payments. The note holder told me he was taking the borrower to small claims court.

I never heard from him again.

For a small monthly fee, this mess could have been avoided, and both parties would have had their own “CPA” providing accurate, timely financial information.

If you carry a note, hire a 3rd party servicer to handle your account!

Let’s say you are holding a promissory note secured by a property you sold. Your note is for $100,000 payable at 6% for 30 years.

You have a need for $25,000 cash. You like the income from your note and you feel good about your borrower. You really don’t want to sell your note. Here is an option for you. Instead of selling the entire note and letting the investor receive the payments for 30 years, you can sell maybe 5 or 10 years worth of payments, get the $25,000 cash you need today. Then, after the investor has received all the payments due him, the note can be assigned back to you and you receive all the remaining payments.

This way you get the cash you need today, the investor minimizes his investment and risk, and you get to “jump back” into the note and pick up more payments in the last half of the note.

Options – you want options. Our business is to provide that to you and let you make the decision that best fits your needs.

Once you have accepted our offer, here are the steps:

1. We run credit on your borrower, looking for a minimum FICO score of 625+.
2. We request from you proof of payments received and necessary documents to confirm your transaction, i.e., Title Policy, Hazard Insurance, etc.
3. We order a Property Appraisal from a Real Estate Broker, expecting a current value equal to or greater than your sales price.
4. If 1-3 are fine, we order a Title Commitment from your Title Company to ensure that there are no defects and Title can pass cleanly.
5. We have a courtesy phone call with your borrower, ensuring him that nothing will change except where his payment goes,  confirming he agrees with the note terms and current principal balance, determine his happiness with his property purchase, confirm employment status, etc.
6. We close, either at your Title Company or Direct with you. Your choice. If you choose Direct, we overnight a package to you, you sign the required documents in front of a notary, provide your banking information, overnight the package back, we record the Trust Deed Assignment, then wire the funds to your bank account.

Most of our transactions close in 30 calendar days or less.

Selling your note is a pretty simple process.

Once you have accepted a price for your note, I will prepare an Intent to Purchase letter. This letter will briefly outline what I have told you verbally. It will indicate the Cash Offer,  review the note terms, stipulate when we will receive the first payment, what the due diligence will entail, who will pay closing costs, estimated closing time, etc.

You and I will sign this letter. This letter starts the process and is our Investor’s proof that his offer has been accepted.

When it comes to pricing a seller finance, 1st position, performing note, every note situation is different. So, pricing always depends on the specifics of your situation. We look at property type and condition, creditworthiness of your buyer, amount of down payment, note terms, number of payments made, etc.

My job is to give you an option: Is selling your note the best decision for you based on the other assets you have, your cash need, etc? Once you have a price, you will be able to make that decision.

The process is simple. I will ask you for a copy of your Signed Promissory Note and the Final Settlement Statement you received from your Title Company or attorney. These 2 documents confirm all the numbers to your transaction. I will look at your property on line and Google Earth, get some idea of its current fair market value, then ask you some questions about your buyer, your history with the property, etc.

I will then have one of my investors review all the information I have gathered and provide an offer for you to consider.

Simple and easy. Call me today if you are ready to get a quote for your note.

One of the consequences of the Lockdown from the Coronavirus pandemic is the probability that more people will work from home. In cities that have high costs of renting/leasing and owning real estate, both employers and employees have learned that business can still be efficient without working from a high rise downtown. As a result, watch out for office space to be vacated, employees not traveling into the city, and some employees relocating out of the city.

If this happens, a business that caters to this new opportunity will find a new market niche. In the note selling business, for years we have given note sellers the option to close their transaction directly rather than meeting at a Title office. The note seller receives an overnight package of the closing documents, signs the required documents in front of a notary, overnights the docs back to the note buyer, and receives his proceeds by wire transfer, bank deposit, or mailed cashier’s check. Simple, less costly, efficient.

Two companies that have focused on this growing market are DocuSign and DocVerify. These firms provide online/at home document preparation and e signature. If you find yourself in need of this kind of service, you may want to check them out.

Note Industry statistics tell us that most seller finance note holders are one and done. This means they will sell one property in their lifetime where they agree to carry a note and provide the financing. Experience tells those of us who buy these notes that the majority of these note holders know little or nothing about their borrower, even though they have agreed to finance the transaction for as long as 30 years! Why is this?

My explanation is that these folks do not consider themselves to be business people. In a strange way, they don’t see themselves as going into business with their buyer. Consequently, their due diligence is sloppy and the “administration” of their note is as well.

The Pandemic has forced business owners to adjust to a new reality. And, in order to save their business and the jobs of their employees, they have been forced to pivot and realign their efforts in order to maintain the viability of their business. The note holders I just described need to do the same thing.

So, I have 2 simple suggestions for any note holder, but especially the one and done folks:

1. Get to Know Your Borrower. If you live in the same area as your borrower, go visit him. Otherwise, give him a call. Introduce yourself. Ask him how he has been coping during the Pandemic. How has his job been affected? Is he healthy and safe? Can he continue to make the note payments? Is he happy with his purchase? Can you help in any way? Bottom line, you want to show compassion and ensure you have a sound transaction. Your buyer should be thankful for your interest and you should feel good about yourself for taking care of your business.
2. Hire a Third Party Servicing Company. If you are receiving your monthly payments directly – cash, mailed check, direct deposit, etc., you should consider contracting with a Servicer to manage your account. Why? For a small monthly fee( your buyer will pay), the Servicing Company will provide Professional Management and Accounting. It’s like having your own CPA. They will collect the payments, impound property taxes and fire insurance, record how much and when payments are received, determine late fees that may be applicable, calculate accurate and current principal balance, prepare annual tax reporting forms, etc. You will get an online monthly report and so will your borrower. They can resolve disputes. Having this service is a time saver and well worth the peace of mind it provides both of you.