Are You the Executor of an Estate with Mortgage Notes?

Introduction

If someone close to you has passed away and named you as the Executor of their estate, then make sure you look to see if there are one or two mortgage notes in that estate. If so, it is then up to you to figure out what the mortgage note(s) are worth and what to do with them now that your loved one has passed.Navigating the unfamiliar world of note business, especially if it is sudden, contains a lot of pressure and puts a lot on your shoulders. So, you will need help—but luckily, with help, the process is not as difficult as it sounds.

In fact, the person who left the mortgage notes to you has left you an investment that you can continue to keep, or cash in and sell the note for money as one would a home.
We have worked with many Executors and through our experiences, we have learned that there are six main steps that have helped the most to simplify the mortgage note process. You can read about these six steps and download a note selling checklist.
So, let us briefly take a look at the first three steps and outline what you can do to make sure that the mortgage notes left to you are valued accurately and handled with professional hands.

1. Clearly Define Family Expectations

This is an important first step that precedes the actual note valuation process. It is crucial to clearly define family expectations. If you have siblings that are also beneficiaries on the estate, this is especially true—they own part of this estate too and must be consulted with and it is a good idea to get an idea of what everyone’s goals are for the mortgage notes in the estate. Perhaps one sibling wants to sell it and another, or perhaps you, do not want to sell.
These minor disagreements are common when it comes to beneficiaries and especially when more than one person is left as a beneficiary. However, we have also seen these disagreements turn into a full-blown family feud, so be sure to sit down or pick up the phone and make sure all of the beneficiaries named know what has been left to whom, what they want to do with the note, and what you want to do with the note. It is necessary to make sure that everyone is on the same page before proceeding further.

2. Become Familiar with the Note Valuation Process

If you have never held a mortgage note before, or never even heard the term, you are not alone. This seems like it would make selling difficult if you have slim or non-existent knowledge on the subject. You will hear terms such as loan-to-value (LTV), discount, seasoning, selling, splitting the note, and the term note, itself. Luckily, our guide to mortgage notes gives you an excellent starting knowledge of notes, what they are, how to sell them, how to keep and utilize them as investments, and what to do next.
The best way to familiarize yourself with the valuation process, is to seek the help of a professional who can guide you through this process. You want to seek out a note buyer or note broker, who will take the time to explain the whole process to you, answer any questions, explain how selling will benefit you, update you on current real estate market conditions, and your part in the process and what you can expect to receive at the end of it.
You can also read through our blog for tips and best practices for selling mortgage notes—advice and information that you can trust.

3. Consider All Options

Remember, you do not have to sell the full mortgage note. If a dispute does arise between beneficiaries about selling versus continuing to hold onto the note and receive the monthly payments (in essence, the ‘mortgage’ paid by the ‘payor,’ or home owner), you can consider a split payment partial.
With a partial, you can sell as much or as little of the note as you want. This could be the solution that may satisfy all of the parties involved if such a dispute comes up. Make sure that if you decide to take this route, to definitely get in touch with a note buyer or note broker, who can guide you and the other beneficiaries through this process.

When is the Best Time to Sell a Mortgage Note?

There is no sure-fire or easy answer to the question of when the best time to sell your mortgage note is. When a mortgage note owner sells their note, they typically do so for a variety of reasons, both personal or because it is in their best business interest to do so.

Signs that Selling a Mortgage Note Would be Beneficial:

If Possible, Sell When Note is Not in DefaultSince mortgage owners sell their notes for business and personal reasons alike, the question changes more into identifying when the best time to sell one’s note is.

Ideally, one should sell their mortgage note when it is NOT in default, if possible. An example of a note in default is if the owners stop paying the mortgage payments to the note holder. While nearly any note is sellable, even ones in default, mortgage notes that are in default are sold at a much larger discount, and the seller loses money on the deal. This is because the mortgage note would pose a greater risk to the note buyer.
If there are any concerns that your payer is at risk of future default, it may be a good time to sell your mortgage note before this occurs. This way, you can get more cash out of the note before it is subject to discount due to default.

Sell When You Have the Finances to SellWhen you sell your mortgage note, it is best to do so during a time where you can afford not having the monthly mortgage payments while it is being sold or brokered to a note buyer. This gap is where you will have no mortgage payments, but you also have not been paid yet for your mortgage note.So, make sure you do not need the money for a few weeks, ideally, for at least one month, or four weeks. If you are in need of cash immediately, then selling your mortgage note is not the best way to go about that.

Selling your note is an option that takes three to four weeks to complete and there are several entities/parties that are involved in the process: from title and escrow companies, the appraisers, and servicers. Coordinating the buying and selling of a note takes time and may encounter some delays.
Sell your note before you are in need of the money, or save up money before selling the note, so you have enough to handle your personal and business fees for at least a month. If you are in need of immediate cash, and must sell your note, you could take out a small, personal loan and pay the loan back plus interest, after your note is sold. Interest for small, personal loans are often high, and you must realize that you would be taking a small profit cut from the sale of your mortgage note, depending on how much your mortgage note is worth and how much money you took out with a loan.

Sell When you Have the Time to Sell

Not only is it best to sell your mortgage note when you can afford to do so, financially, but it is important to have the time to sell it as well. This way, you can shop around for different buyers or have your mortgage note broker shop around, for the best deal possible.

Time gives you the ability to negotiate a fair price for your note, rather than being the one desperate to sell—note buyers know how to play hardball when note sellers are desperate to sell and do not have the time to negotiate. Time gives you the upper hand.
Sell When the Sale of your Note Offers a Better Investment OpportunitySelling your mortgage note when doing so can allow you to take advantage of another and better investment opportunity, is simply good business. Since it is a personal investment, you have to be aware of better investments out there or have someone looking for you.

Most notes pay a decent interest rate and they are a good investment since the note holder receives the mortgage payments and can then sell the home at full market value—this investment is for the patient and those who plan on investing and reaping its rewards years later.
If another investment opportunity shows up that could pay you a better return, then this is a great time to sell your note. Many investors use cash from their mortgage note to buy into another investment that will produce them a higher return.

Sell When Your Property Hits the Value Sweet Spot

When your property is calculated to be worth 30% + more than the remaining balance; that is an excellent time to sell your mortgage note. This is the value sweet spot. Make sure to pay attention to your mortgage note’s LTV (loan-to-value).
To calculate the LTV, simply divide the remaining balance by the property’s value. The best time to sell your mortgage note is when your loan-to-value is below 70%.
A high LTV results in a greater discount and therefore, less money in your pocket. With the current real estate market, the condition of the property will also affect the LTV. Although the two factors are out of your control, you can stay informed on the market conditions and take action to sell your note when the time is right. This will require a steady checking of your LTV, so make a note to check it bi-weekly or monthly for your benefit.
Consider Selling a PartialDepending on the terms of your mortgage note, some note buyers will not be able to cash out your full note.
However, a partial could actually be a better option for you. Many note holders actually receive more cash in their pockets over the lifespan of the note by selling a partial. If you are not as familiar with selling a partial note, contact a note specialist to learn more about it. You can also read more about partial note sales here.

Conclusion
So, there you have some considerations to take into account when deciding when the conditions are best for selling your mortgage note. The best time will depend on your financial needs, your time commitments, and your future plans. If it seems like now is the right time for you to sell your mortgage note, begin by getting a free quote. That is always the best way to start the process and determine if it is worth selling right away, or if you should wait it out a bit more for more favorable conditions, if possible.

5 Reasons to Consider Selling Your Note Now

Think about your past. Has everything gone as you planned that it would? Have there been twists and turns that have defined the ways that you think about things now?

In reality, life is very unpredictable, and so is the value of your mortgage note. Sadly enough, there are far more negative things that can affect the value of your property between now and the time when your mortgage balance is finally paid off. If you’ve been tempted to sell your note early, but were talked out of it for some reason, you’re in the right place.

We’ll show you 5 reasons to consider selling your note now to make the most out of your investment in consideration of your future:

1. Your balance now is the highest that your house will ever be valued.

While your note balance decreases, so does the cumulative pay price, and you’re typically better off getting the chunk of cash you want now, despite what lenders have probably told you. In reality, you’ll get the best quote on your property when your balance is higher, which is why it’s generally better to sell your note for cash now (with the remaining balance in tact rather than a whole note sell later on.

2. Inflation will inevitably make your home worth less over time.

The value of the dollar is going to go down- statistically. You should expect the value of your house to dwindle, even in the unlikely occurrence of some fantastic economic upturn (we think you’ll agree that it’s unlikely). Inflation is almost guaranteed as the Federal Reserve resorts to printing more money.

3. Sometimes it’s impossible to foresee financial difficulty and possibly defaulting.

Even if you’ve got a stable job, good credit history, pay history, healthy and saved money, there’s always a chance of circumstances (out of your control) that could drastically affect your ability to make timely payments, and if you default, it’s unlikely you’ll be able to sell when you want.

4. Your property could decrease in value, more than you’d think.

Trends have said that real estate is back on the upswing in late 2015, but the location and condition of your home affect the price more than anything else. Your note loan gives your home more selling power, because the bank has a set “price” for your home. As the property value decreases so does the loan-to-value ratings.

5. Changes to buying status and criteria could ruin your chances to sell.

Smart sellers never count their chickens before they hatch, because brokers are constantly changing criteria and making new deals. Sells today don’t necessarily equate to sells at a later date, especially in changing markets.

Don’t get caught in a loser’s market. Take our 5 reasons to consider selling your note now to heart; and make the smart decision to secure your financial future NOW and get the home that you really want.

Do I Need an Appraisal before I sell my real estate note?

Note Holder often ask, do I need to know the value of my note before I Sell My Real Estate Note?

When you have decided to sell your mortgage note, there are a few things to expect. One of them is an inspection of some kind.Mortgage note buyers will want to know the condition of the property that the note is secured by. At the minimum, and depending on the note buyer, a Broker’s price opinion, or BPO, will take place.

What is the difference between inspections, appraisals, and BPO’s?

An inspection can range from a typically a general observation of the exterior of the property to a complete home inspection. The information from an inspection may include whether or not the property is occupied, if there is any apparent damage to the property and whether there is any obvious threat that could impact the value of the property. A general inspection can done by almost any person and can include a general “drive by” of the property.

A complete home inspection will include what a person walking through a house cannot see. This inspection will tell you if the foundation is cracked or if the A/C unit is about to die. Other items inspectors may note are termite damage, roof condition, electrical issues, plumbing issues, drainage, and flooring problems. These home inspections should be completed by licensed or certified inspectors

A BPO is performed by a real estate professional, not necessarily a broker. It can be an appraiser, a real estate agent, or a broker. It can be a “drive by” which will be the exterior of the property or can include the interior if the person has access. . BPO’s usually determine a general listing price when selling a home. A BPO can include the size, type, and age of the property. A complete BPO will have the characteristics of the neighborhood and some values of similar properties nearby.

An appraisal is more detailed than a BPO and often include statistics, analyzation of data, pictures, and other information related to the specific party. Appraisals will often include the interpretation of the information along with information from public records. Pictures of both the interior and exterior of the property will be taken. Notes about any architectural features, and necessary repairs will be used to support the valuation of the property. Appraisers are licensed or certified depending on the state. When the note buyer is ready to move forward with the purchase of the note, the seller will know what to expect when one of the above is requested.

How You Can Get the Most for Your Mortgage Note

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When you’re ready to sell your mortgage note, how can you get the highest offer?

First, do not expect to get the full value. Investors need to make some profit and they do this by discounting the amount. The amount of discount can vary from 10% to 50%, all dependent of several factors.

The many factors companies or investors look at when offering you a quote on your mortgage note are described below, but once you find the company who invests in what note you are offering, gather as much information as possible. With your information, the investor can determine what will be offered for your note.

Property Type
Some companies will only offer and purchase notes on single family and multi -family homes. Others prefer commercial notes or land or buildings, mobile homes, private land only.

Are payments up to date?
Is the borrower paying on time and is up to date?  If not, a note can usually still be sold but “non-performing notes” are sometimes more difficult to sell and usually has a deeper discount.

How long have you been receiving payments? How much equity is in the property? What is the value of the property?
The longer you have been receiving payments, the better. When a note is “seasoned”, and or when the borrower puts down a large down payments, it proofs to all that the borrower has more invested in the property and will be less likely to stop paying.

How many payments remain?
The longer the term that remains, the better. This is a better investment to someone who purchases notes therefore the offer is usually higher. If the term is shorter, the less the discount will be. 

What is the interest rate on the note?
Investors need to be able to calculate all numbers to determine if it makes financial sense.

What is the credit score of the borrower?
Having the credit score of the borrower helps the investor determine how much of a discount will be offered.  If the borrower has a low credit score, a larger discount is usually offered.

Finally, what position is the note in? Is the note in first or second lien position?  Knowing where the notes stands is important to whether or not the investor will make an offer. Some investors make offers only on first positions. You also want to know if you are dealing with a middle man. A middle man is one who connects a seller to an investor.  This means the middle man needs to be paid and sometimes a fee or a smaller payment is offered.  Avoid this by going directly to a company or investor.

Some of the factors are out of your control such as the borrower paying or their credit score.  What you can do to get the highest offer out of selling your mortgage note, ask for references, and ask questions.  Be sure to keep good records of all transactions and deal with a reputable investors.

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The Importance of Getting a Credit History When Selling Your Note

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.