Can I Sell My Note to a Private Individual Myself?

Yes. A note is property you can sell to anyone willing to buy it, including a relative, a friend, a business partner or a local investor, and no company or broker has to be involved. When you sell privately, the two of you take on the work a note buyer would otherwise handle: settling a fair price, drawing up the paperwork, transferring the documents and telling the payer.

Plenty of private sales go smoothly, especially between people who know each other and use a closing agent and an attorney. This page covers what each step involves, where private sales tend to go wrong and how to tell whether doing it yourself suits your note.

Who private buyers usually are

Most private sales are to someone already close to the deal: a family member who wants steady monthly income, a friend who has heard you mention the note, a partner from the business you sold, or an investor met through a local real estate group. Sometimes the payer’s own family steps in to buy the note so the debt stays in the family. Before you agree to anything, read your note and the mortgage or deed of trust for any clause that limits transfer. Few private notes have one, but it is worth the five minutes.

Agreeing on a fair price

A private buyer is still trading cash now for payments later, so the price still comes from the return the buyer wants on their money. The higher that return, the lower the price. Here is how it works on an illustrative note:

Illustrative example. The returns are chosen for the arithmetic, and a buyer’s real figure depends on the note, the payer and the property.

Neither of you has to guess. Getting a quote from professional buyers first gives you both a market figure to work from, and you are under no obligation to sell to whoever quotes. You can send your note for pricing, see the balance, yield and discount each offer is built on, and then decide whether a private sale beats it.

Selling to a relative well below that market figure can be partly a gift for tax purposes. If that is what you intend, or if the gap is large, ask your tax adviser before you sign.

The paperwork a private sale needs

1. A written purchase agreement covering the price, the balance it is based on, the closing date and what each side is promising. The note purchase agreement page lists the usual terms.
2. An endorsement of the original note to the buyer, written on the note or on an attached page called an allonge, and delivery of the original itself.
3. An assignment of the mortgage or deed of trust, signed, notarized and recorded in the county where the property sits.
4. Copies of the payment history, the settlement statement from the original sale and any insurance and tax records you hold.
5. A written notice to the payer saying who now owns the note and where to send payments, signed by both of you.

That last step matters more than it looks. A payer who keeps paying you after the sale has paid the wrong person, and sorting it out strains everyone. What happens to your payer after you sell walks through the change from the payer’s side. Where the payer lives in the home, federal rules can require specific written notice when a loan or its servicing changes hands, and an attorney can tell you which apply to your note.

Use a closing agent anyway

Even between relatives, a title company, escrow company or attorney should hold the buyer’s money and your original documents until both are ready, then release them together. That protects the buyer from paying for a note that is never delivered, and protects you from handing over the original before the money is there. The steps are the same as in any note sale closing.

Confirm wiring instructions by phone, using a number you already have, before any money moves. Fraudsters target real estate closings with fake emails changing the account, and a private sale with no company in the middle is an easy mark.

Where private sales go wrong

• The buyer cannot fund. A friend may mean every word and still not have the cash on closing day, especially if the money is tied up in another sale.
• The buyer skips the checks. Someone who never looked at the title or the payment record may come back later claiming they were misled.
• Your promises still count. Whoever buys, you are standing behind what you say about the note: that the documents are genuine, the balance is right and there are no hidden liens.
• Recourse creeps in. Informal promises to a relative, such as “if the payer stops, I’ll make it right,” can turn into a legal obligation. Put any such promise in writing, or leave it out deliberately.
• The payer defaults later. The loss falls on someone you see at holidays, and the conversation about foreclosure becomes a family one.

Selling the note also ends installment reporting on the original property sale. Any gain you had been spreading out is generally reported in the year you sell, under the rules for disposing of an installment obligation (IRC 453B). For the general picture, see installment sale tax when you sell a note, and ask your tax adviser to run your own numbers.

When doing it yourself makes sense

A private sale tends to work when the note is performing, the documents are complete, the buyer has the cash in hand and both sides are willing to pay for an attorney and a closing agent. In that case you skip the middleman entirely and can agree on whatever price suits you both.

It gets harder when the payer is late, an original document is missing, you need the money by a set date, or the buyer has not bought a note before and expects you to guide them. In those cases a professional buyer’s due diligence, title work and closing routine carry much of the load. If you decide to go it alone, have a lawyer read the agreement, and keep the rest of the guide to selling a note close by.

Keeping the note is also a fair outcome. If neither a private buyer nor a professional quote gives you a price worth taking, the payments will keep arriving as before.

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