Partial Note Purchases: Sell Part of Your Note

A partial sells a set number of your note’s payments for a lump sum, and the note is handed back to you once the buyer has collected them. It raises less cash than selling everything and gives up far less of what the note would have paid you.

A buyer who wants your note will quote a price for all of it, because buying the whole thing is the simplest deal for them to make. On your side it is the deal that gives up the most interest. This guide covers the other route: what a partial is, how the price is reached, which notes can carry one, what the agreement has to settle, and how to tell whether it suits you better than a full sale or no sale at all.

What a partial note purchase is

Think of your note as a stream of monthly payments running out to the payoff date. A full sale transfers the whole stream. A partial transfers a defined piece of it, such as the next 60 payments, for a price paid to you at closing.

From closing onward the payer sends each payment to the buyer, or to a servicing company (a firm that collects and records payments) acting for both of you. When the buyer has received the number of payments they bought, the note is assigned back to you and the payer pays you until the note is finished. Nothing about the payer’s deal moves in the meantime: the rate, the payment amount and the payoff date stay as written, and only the address for the payment changes.

If you want that in a single page, read what a partial note purchase is.

How the price is reached

Buyers price by yield, which is the yearly return they need on the money they put in. They work backward from that return to the amount they can pay today for the payments on offer. That amount is always less than the payments add up to. On a full sale the shortfall is measured against the balance you are owed and called the discount.

Because the yield compounds, a payment due next month loses one month of it and a payment due in ten years loses ten years of it. A shorter purchase is also easier for a buyer to judge, since five years of exposure to one payer and one property holds fewer unknowns than fourteen. Both effects point the same way: the near payments are the ones a buyer pays most for.

The table shows this on one note with a $1,140 monthly payment, 168 payments remaining and a balance of about $129,400, priced for a buyer who wants an 8% yield.

Payments sold	Cash today	What those payments add up to	Left with the buyer
Next 36	$36,400	$41,040	$4,640 (11.3%)
Next 60	$56,200	$68,400	$12,200 (17.8%)
Next 84	$73,100	$95,760	$22,660 (23.7%)
All 168 (full sale)	$115,000	$191,520	$76,520 (40.0%)

Illustrative example. The last column is the scheduled payments minus the price, shown in dollars and as a share of those payments. A real quote moves with the payer’s record, the property and the buyer.

The further out you sell, the larger the share that stays with the buyer. Sell 36 payments and about 11 cents of each scheduled dollar goes to the buyer’s return. Sell all 168 and it is 40 cents. A partial stops the sale before the expensive years. On this note a 60-payment partial pays $56,200 now and returns a note with 108 payments and about $94,950 still owed. For the same note sold whole, sold in part and kept, see partial vs full sale, the numbers side by side.

Straight, split-payment and balloon partials

Straight partial

The buyer purchases the next set number of whole payments. It is the simplest structure to price and to explain, and the table above is built on it.

Split-payment partial

Here the buyer purchases part of each payment for a period and you keep the remainder. On a $1,140 payment you might sell $700 of each one for eight years and go on receiving $440 a month throughout. It raises less cash than a straight partial over the same period, in exchange for an income that never stops. Split-payment partials explained covers how the two shares are tracked.

Balloon or back-end partial

A balloon is a large final payment that clears the balance before the monthly payments would have. Where a note has one, a buyer can purchase the monthly payments and leave the balloon to you, or purchase the balloon and leave you the monthly income. The choice turns on whether you want money coming in now or a lump sum later, and balloon and back-end partials sets out both.

Which notes can carry a partial

A partial depends on the note as much as on what you want from it. Buyers look for enough payments left that something meaningful remains after theirs, a payer with an on-time record they can verify, and a property worth clearly more than the balance. A note with only two or three years to run leaves little to split. A payer who is already behind makes a buyer want all of the note or none of it.

Size matters too. Title work, document review and recording take much the same effort on a small purchase as on a large one, so a buyer may decline a very small partial or price it poorly. And some buyers do not write partials at all, which is a fact about that buyer and tells you nothing about your note.

From first figures to the note coming back

You share the note details. Balance, payment, rate, payments left, the property and how the payer has been paying.
Buyers price it. Ask for the full-sale price and for a partial at one or two sizes, each with the yield and the discount shown.
You choose a structure and a size. The cash you need is the place to start, and the fewest payments that raise it is the place to stop.
The buyer checks the file. They review the note, the recorded mortgage or deed of trust, the payment history, the title and the property value.
You sign the partial agreement. It fixes the number of payments sold and what happens on early payoff, on default and at the end.
Closing and funding. The note is assigned to the buyer and you are paid.
The partial runs. The buyer receives the payments they bought, and you should be able to see the payment record while they do.
The note comes back. It is reassigned to you and the payer is told to pay you again.

The first two steps cost nothing and commit you to nothing. If you would like us to run them, ask for a price on your note and tell us how much cash you are trying to raise.

What the agreement has to settle

A full sale ends at closing. A partial ties you and the buyer together for years, so the written agreement carries more weight, and it needs a clear answer to each of the events below. A buyer who cannot explain their answers in plain words is telling you something about the deal. Have your own attorney read the agreement before you sign, because the terms differ from buyer to buyer.

The payer pays the note off early

People sell and refinance. If the note is paid off in the middle of your partial, the payoff has to be divided. A fair agreement gives the buyer the amount they are still owed for the payments they have not yet received, calculated at their yield, and gives you everything else.

On the example note, a payoff after 24 of the 60 payments would be about $116,800. The buyer is still owed about $36,400, which leaves about $80,400 for you. These are illustrative figures, and what happens if the payer pays off early walks through the split.

The payer stops paying

The note is assigned to the buyer for the length of the partial, so the agreement should say who decides between a workout and a foreclosure, who pays the legal costs, whether you may step in by buying the partial back, and how any recovery is shared. Buyers differ here more than on price. Read what happens if the payer stops paying during a partial before you compare two offers.

The end of the partial

The return of the note should happen on its own once the buyer has their payments, without a request from you. The agreement should also name who prepares and records the reassignment and who notifies the payer. A longer checklist is in what to look for in a partial purchase agreement.

When a partial fits, and when it does not

A partial tends to fit when	A full sale tends to fit when
You need a specific amount that is well below the value of the note	You need the largest possible check now
The payer has a long on-time record	The payer has started paying late
You would like the income back later	You want to be finished with the note
Your full-sale offers feel too low to accept	You are dividing an estate or a settlement into cash

Keeping the note belongs in the comparison as well. If you do not need the cash, the note you already hold pays you more in total than any sale, and a partial still leaves you carrying the payer’s risk on the payments that come back. When the figures point that way, keeping it is the answer we give.

Questions to ask any buyer offering a partial

What yield did you use to price this, and what would the price be for a different number of payments?
If the note pays off early, exactly how is the payoff divided? Can you show me with numbers?
If the payer defaults, who decides what happens and who pays for it?
Do I have the right to buy the partial back, and at what price?
Who collects the payments during the partial, and will I be able to see the payment record?
How does the note come back to me at the end, and who pays to record it?
What do you earn on this, and where does it show in the numbers?

How we handle partials

We take your note to more than one buyer and ask each for a full-sale price. Where the note has enough payments left and a payment record to support it, we ask for a partial as well. Whatever comes back reaches you with the worksheet behind it: the balance, the yield, the discount and what we earn. If only one buyer bids, or none of them will quote a partial, you hear that from us along with the reason. Quotes are free, and you are under no obligation to accept any of them.

Three things make any partial quote, ours or another buyer’s, quicker and firmer: the note itself, a record of the payments received and your current balance. Add the amount of cash you need, because that figure decides how many payments are worth selling.