A note is yours to sell whoever the payer is, and your relative’s rate, payment and payoff date carry over unchanged. The care goes into two places: a note written as a favor can be thin on paperwork, which lowers the price, and your relative will answer to a stranger afterwards.
What changes for your relative
A note is a contract, and selling it changes who receives the money while leaving the terms as written.
| Stays the same | Changes |
|---|---|
| Interest rate | Who the payment is sent to |
| Monthly payment | Who they call with a question |
| Payoff date and balance | How flexibility is handled |
| Their ownership of the property | Who can enforce the note |
The right-hand column is where families feel it, and it pays to know what happens to your payer after you sell before you put a relative through it. If you have been letting a payment slide at Christmas or taking it a week late, a buyer will apply the note as written, including any late fee and, in a serious default, the right to foreclose. Foreclosure is the legal process of taking the property back when the debt goes unpaid.
Tell them before the buyer does
A note can ordinarily be sold without the payer’s permission, though you should check yours for a clause that says otherwise. Tell your relative regardless. The buyer will contact them during its checks to confirm the balance, and learning of the sale from a stranger does more damage than the sale. The conversation can be short: the terms are staying the same, a new company will collect, and this is when it starts.
What a buyer sees in a family note
Terms set as a favor show up in the price. A low or zero interest rate means the buyer has to pay less to reach the return it needs. A small down payment, or none, leaves less of the payer’s own money in the property and so less equity protecting the buyer. A mortgage or deed of trust that was never recorded may leave the note unsecured in practice.
The record matters as much as the terms. Payments made in cash or by informal transfer leave no provable history, and a sale price the family agreed above or below market carries no weight with a buyer, who values the property as it stands today. None of this blocks a sale outright, but each point lowers the offer or thins the field of buyers. By how much depends on the note itself, so if you would like to know before you fix anything, send us the note’s terms and mention that the payer is family.
What you can put right first
- Record anything unrecorded. A title company can tell you what is on file at the county.
- Move payments to a traceable method. Checks or bank transfers, on the due date, from now on, because a buyer will ask you to prove the payment history on the note.
- Put any side agreement in writing. If you verbally changed the payment or forgave a few months, have an attorney document it, because the buyer needs the paper to match what has been paid.
- Confirm taxes and insurance are paid. Ask your relative for proof.
A note that charges no interest may also raise tax points for a CPA, and buyers price it in their own way, so read about selling a note that charges no interest if yours is one.
Getting distance without a full sale
Your relative may be able to refinance with a bank, or you can sell the note back to the borrower at a figure you both agree, and either keeps a third party out altogether. A partial purchase is another route. You sell a set number of upcoming payments for a lump sum and the note returns to you afterwards, so your relative deals with the buyer for a few years instead of the life of the loan.
If the strain is collecting from family and you have no need of a lump sum, a servicing company can take over the billing and records for a monthly fee. You remain the owner and step out of the awkward conversations.
Reread the note as a stranger would
Before deciding, read the late fee, grace period and default clauses and ask whether your relative could keep to every one of them with no allowances made. If the answer is no, a servicer or a short partial will be kinder than a full sale, and keeping the note may be the better answer. If the family tie is not the only complication, for instance a note you also share with a sibling, look through the other situations for the one that matches before you settle on a route.
Related questions
Will the buyer be harder on my relative than I am?
A buyer will apply the note as written, including late fees and default terms. They will not make informal allowances. If your relative depends on flexibility, a partial sale, a servicer or keeping the note may suit better.
Can I sell if we never recorded the mortgage?
Possibly, but as things stand the note may be unsecured in practice, which narrows the buyers and lowers the price. Recording the security first puts that right. A title company or attorney can tell you what is on file and what to do.
Can my relative buy the note from me?
Yes. They can pay it off in full, for example by refinancing with a bank, or you can agree a payoff figure between you. Put any reduced payoff in writing and ask a CPA about the tax side first.