When converting your long term investment into cash by selling your note, credit history of the borrower/payer is important. In the process of selling a note, a number of factors come into play. The borrower’s payment history, which is how long and whether payments are on time, is needed. Most buyers will required though, a new credit history and score of the payer before continuing with the sell of the note.
Some may say that proof of the borrower’s credit is in the months or years of consistently paying on time. What is not known is the current financial situation. Situations may change for the borrower since he/she first bought the property. A loss of job or divorce could be making the borrower stop payments on other debts and would eventually stop paying on the note. The payer’s credit worthiness might mean that paying off the note is not a priority. A current and up to date credit history will show if all debts or current or in default.
Besides equity and terms of the note, having the current credit score of the borrower gives the buyer of the note a better assessment of the risk involved. A change in status would affect the ability for the note to be paid on time or at all. If this is the case, this does not necessarily mean that the note could not be sold. There would probably be more of a discount offered in this situation.
In general, many note buying companies will discount the note more when a lower credit score is found on the borrower. The risks become higher, therefore the amount offered on the note is less. What can help offset this situation is if a lot of equity has built up over time or a large down payment was given. A comfort area has been created with the buyer of the note and defaults rarely occur in these situations.
In selling your note, be prepared to shown the payment history, and credit score of your borrower. This will help your case in getting the best offer in the sale of your note.
