A note sale runs in seven steps: you describe the note, buyers price it, you choose an offer, you sign a purchase agreement, the buyer checks the file, you close, and the payer is told where to pay. Until the agreement is signed you can stop without owing anyone anything.
The order is the same from one sale to the next. The amount of work in each step is what varies, mostly with how complete your paperwork is.
Steps 1 and 2: describe the note and get it priced
A buyer can price a note from a handful of facts. Expect to be asked for:
- The original amount, the interest rate and the monthly payment
- The date of the first payment and the number of payments left
- The balance still owed
- Any balloon, which is a large final payment due before the note would otherwise be paid off
- The property: its address, what kind it is, the price it sold for and the down payment
- Whether your lien is first in line or behind another loan
- How the payer has paid: on time, late now and then, or behind
Be exact, and include the awkward parts. If the payer missed two payments last winter, say so now, because the buyer will find it in the payment record and an offer built on a tidier story than the true one will be repriced when they do.
From these facts each buyer decides what return they want on their money and calculates the price that produces it. When you send us those facts, we pass the description to buyers and ask each for a full-sale price. We also ask for a price on a partial, the sale of a set number of payments in place of all of them, if the note has enough payments left and a steady enough record for one to work.
Step 3: choose an offer, or none
You now have numbers on paper. Each offer should state what is being bought, the price, the yield behind it, any costs that come out of your proceeds and the conditions attached. If one of those is missing, ask for it before going further.
Nothing has been signed at this stage and nothing is owed, so it is the right moment to be slow. Put the offers beside what the note pays if you keep it, using the grid in how to compare offers on your note if it helps. Turning all of them down is a legitimate outcome.
Step 4: sign the purchase agreement
Accepting an offer means signing a note purchase agreement, the contract for the sale. It names the note and the price, lists what the buyer still has to verify, records what you are stating to be true about the note, and says what happens if the checks turn up a problem.
Read the conditions first. They should say exactly what the buyer must confirm and which result allows them to change the price or withdraw. Then read your own statements. Sellers are commonly asked to confirm the balance, the payment record and that the note has not already been pledged or sold to someone else, and each of those has to be true as written. Last, look for an exclusivity clause, under which you agree not to offer the note elsewhere while the buyer works, and check how long it runs.
Your signature here creates obligations that the earlier steps did not. If any clause is unclear, pay an attorney to read the agreement before you sign it.
Step 5: the buyer checks the file
The buyer now verifies what the offer assumed. You will be asked for copies of your note, security instrument, closing statement and payment record, while the buyer orders work from outside firms: a title search, a valuation of the property and, with your payer’s details, a credit check.
Your part is to reply promptly and accurately. The title company and the valuer work to their own calendars and nobody in the sale can hurry them, but a question sitting unanswered in your inbox is a delay that only you can remove.
If the checks match your description, the price stands. If they do not, the buyer comes back with a request, a revised price or a withdrawal. Each check, and the kind of finding it produces, is covered in what a buyer checks before funding.
Step 6: close and get paid
Closing is the exchange. You sign the documents that transfer the note and the lien, hand over the original note, and the buyer pays. A closing agent, which may be a title company or an attorney, can sit in the middle so that neither side has to go first.
The document that transfers the lien goes into the county records, and recording offices generally want the signature on it notarized, so expect to sign in front of a notary. Payment follows by wire or check, as the agreement provides, and the order of events at closing is worth knowing before the original note leaves your hands.
Step 7: the handover
After closing, the payer is told in writing that the note has a new owner and where to send payments. The letter may come from you, from the buyer or its servicing company, or from both.
A few loose ends are yours to tidy up:
- If a payment reaches you after closing and belongs to the buyer under the agreement, forward it.
- Check that the insurer on the property has been told who should now be named on the policy.
- Keep copies of everything you signed and a record of what you were paid, since your CPA will ask for both.
A full sale ends your involvement at this point. After a partial you are still the future owner of the note, so ask how and how often you will be sent statements while the buyer collects.
Where sales stall, and what to do before step 1
The delays a seller can prevent all sit on the seller’s side of the file, and each can be dealt with before a buyer is involved.
The first is an original note that cannot be found. A copy is enough to get a price, but the original is handed over at closing, so look for it before you ask anyone for an offer. The second is a thin payment record. Bank statements showing each deposit carry more weight with a buyer than a handwritten list, and they take time to pull together. The third is a seller who turns out to be several people. Co-owners, heirs and trustees all have to agree and sign, and it is far easier to settle who has authority before a purchase agreement is on the table than after.
With those three settled, describing the note is the short job it is meant to be. If you have not yet decided whether to sell at all, weigh a full sale against a partial and against keeping the note before step 1, because that choice decides what you ask buyers to price.
Related questions
At what point am I committed to selling?
When you sign the note purchase agreement. Before that, a quote or an offer creates no obligation on your side. After it, read the agreement for what it says about withdrawing.
Do I have to meet the buyer in person?
A meeting is not needed for the sale to happen. The buyer deals with you by phone, email and courier, and the only person you have to sit down with is the notary who witnesses your signature.
Does the payer take part in the process?
The payer does not sign anything to approve the sale. A buyer may ask them to confirm the balance and the payment terms, and they are told where to send payments once the sale has closed.