How to Sell Your Mortgage Note: A Complete Guide
What Is a Mortgage Note?
Before you decide to Sell you mortgage note, it's important to understand what a mortgage note is. A mortgage note (also called a promissory note) is a legal document that outlines the terms of a loan used to purchase real estate. It includes key details such as the loan amount, interest rate, payment schedule, and the consequences of default.
If you’ve financed the sale of property yourself—also known as owner financing—you’re likely holding a mortgage note. Instead of the buyer making payments to a bank, they make them directly to you. But what if you want a lump sum now instead of waiting 10, 15, or 30 years to collect those payments? That’s when you might choose to sell your mortgage note.
Why Should You Sell Your Mortgage Note?
There are many reasons why note holders choose to sell your mortgage note, including:
1. Immediate Access to Cash
Sometimes life throws unexpected financial needs your way—medical bills, home repairs, business investments, or college tuition. Selling your mortgage note allows you to tap into the value of your asset immediately.
2. Avoid Risk of Default
If your borrower falls behind on payments or defaults, you're left to chase the money or possibly start foreclosure proceedings. When you sell your mortgage note, you eliminate this risk entirely by transferring the note—and its responsibility—to someone else.
3. Simplify Estate Planning
Holding a mortgage note can complicate your estate if something happens to you. Many people prefer to cash out the note, making estate management easier for heirs and beneficiaries.
4. Reinvest Your Money
When you sell your mortgage note, you gain liquidity that can be reinvested in other assets like real estate, stocks, or retirement accounts—often with better returns or lower risks.
How to Sell Your Mortgage Note Step-by-Step
Selling a mortgage note may sound complicated, but it’s a fairly straightforward process. Here’s how it typically works:
Step 1: Gather Documentation
Before you start looking for buyers, make sure you have all the necessary paperwork. This includes:
The original mortgage note or promissory note
The deed of trust or mortgage
Payment history records
A copy of the property insurance
Borrower information and credit history (if available)
The more organized you are, the faster and easier the process will be when you sell your mortgage note.
Step 2: Get a Free Quote
Reach out to a few reputable mortgage note buyers or note purchasing companies. They’ll review your documents and provide a quote based on:
The remaining balance on the note
Interest rate
Property value
Borrower credit score and payment history
Length of the remaining loan term
Most offers are discounted from the full value of the note to account for time and risk. This is standard practice in the note buying industry.
Step 3: Review the Offer Carefully
When you receive an offer to sell your mortgage note, make sure to review all terms and conditions. Ask questions like:
Is the offer for the full note or a partial purchase?
Are there any fees or closing costs involved?
How long will the transaction take?
Always compare multiple offers and never rush into a deal. It’s also a good idea to have a real estate attorney or financial advisor review the paperwork before signing.
Step 4: Close the Sale
Once you accept an offer, the buyer will conduct final due diligence—this may include a property appraisal, title search, or credit check on the borrower. If everything checks out, you’ll sign over the note, and the buyer will wire your funds directly to your account.
You’ve now successfully completed the process to sell your mortgage note.
Pros and Cons of Selling Your Note
Pros:
Immediate access to cash
Eliminate the risk of borrower default
No more administrative headaches
Reinvestment opportunities
Cons:
Discounted lump sum
Potential tax implications