A note sale is paid as a single lump sum at closing, by bank wire or check, through a neutral closing agent such as a title company, escrow company or attorney. What reaches you is the purchase price less the costs and payoffs listed on the settlement statement.
From purchase price to net proceeds
The figure in your purchase agreement is the purchase price, and the figure that reaches your account is the net proceeds. The settlement statement lists every line between them.
| Line | What it is |
|---|---|
| Purchase price | The amount in your purchase agreement. |
| Closing costs you agreed to pay | Items such as title work, recording or document fees, where your agreement puts them on you. |
| Payoffs | Anything that has to be cleared for the buyer to get a clean lien, such as overdue property taxes you agreed to cover or a loan you took against the note. |
| Payment adjustment | A correction for any payment the borrower makes between the pricing date and closing. |
| Net proceeds | What is wired or paid to you. |
Here is an example with round figures, invented to show the arithmetic: a $90,000 purchase price, less $600 of closing costs you agreed to pay and a $1,400 payoff of overdue property taxes, leaves net proceeds of $88,000. Which costs fall on the seller differs from one buyer and one deal to the next, so ask for the list of fees and costs in your note sale before you accept.
The payment adjustment
A note is priced on a set number of remaining payments as of a set date. If the borrower pays you another installment before closing, the buyer is receiving one payment fewer than they priced, and the price is adjusted for it. The installment itself stays with you.
Who holds the money until closing
When a note sale closes through title or escrow, the buyer’s funds and your documents both go to the closing agent. The buyer sends the purchase money, you send the signed transfer documents and the original note, and the agent releases each to the other side only when both are in hand. You are protected from giving up the note unpaid, and the buyer from paying for a note they do not yet own. A buyer who asks you to mail the original note to them before funds are with a closing agent should be asked why.
Partial sales and holdbacks
A partial sale, where the buyer purchases a set number of your payments, also pays a lump sum at closing. It is smaller than a full-sale price because fewer payments are being bought, and once the buyer has collected them the monthly payments return to you. Judge a partial against a full sale side by side on everything you would receive over time, and not on the closing check alone.
Some offers split the money, paying part at closing and holding part back until a condition is met. That is a different arrangement from a partial purchase, where the lump sum for the payments you sold is paid at closing. A holdback changes what an offer is worth, so get the exact condition, the date, and the name of whoever decides that the condition has been satisfied.
Whose name the payment is made in
Funds go to the owner of the note, in the name on the note. Where two people hold it, payment is made to both or split as they instruct in writing. Where an LLC, a trust or an estate holds it, the money goes to that entity’s account and not to an individual member, trustee or heir.
Receiving a wire safely
Give your bank details to the closing agent directly, by phone, on a number you have looked up yourself. Treat any email that changes wiring instructions as suspect until you have confirmed it by voice. How soon the funds arrive after signing depends on the closing agent and on recording, so ask at the start, when you are also working out how long it takes to sell a note like yours.
Compare offers on the net figure
Payment is the last of the steps in selling a note, but what you will net is worth knowing at the first. If you do not yet have offers to compare, start by having your note priced. Once you hold offers, ask each buyer for an estimated settlement statement before you accept anything, then line up the net proceeds. An offer with the higher purchase price can pay you less once its costs and holdbacks are counted.
Related questions
Do I get the full purchase price?
You get the purchase price less whatever your agreement puts on you, such as certain closing costs or payoffs needed to clear the lien. Ask for an estimated settlement statement so you can see the net figure before you accept.
Can I be paid in installments?
A standard sale pays once, at closing. Some offers hold part of the price back until a condition is met. If an offer is staged, find out the exact condition and date before comparing it with others.
What happens to a payment the borrower makes just before closing?
The price is based on a set number of remaining payments. If the borrower pays you another one before closing, the price is adjusted for it, and you keep that payment.