Before paying, a note buyer verifies that the documents are valid, that the title shows your lien where you said it is, that the property is worth what was assumed, that the payer is who they appear to be, and that the payment record is accurate. If all of it matches your description, the offer stands.
The name for this stage is due diligence, and in the sequence of a note sale it falls between the signed purchase agreement and closing. Offers that change tend to change here, which is the reason to understand what the buyer is looking at.
Why the first offer is conditional
A buyer prices your note from your description. At that point they have not seen the title, driven past the property or read the fine print of the note, so the offer amounts to a statement that if everything is as described, this is what they will pay.
Due diligence tests the “if”. What you can fairly expect in return is a clear list of what will be checked and an explanation of anything that changes as a result. The offers we return after you send us your note details each come with a worksheet showing the inputs the price assumes, so a later change can be traced to the input that moved.
What gets checked
| Check | What the buyer looks at | What they are asking |
|---|---|---|
| Documents | Note, security instrument, any modifications | Is this debt valid and can it be enforced and transferred? |
| Title | County records for the property | Is the lien recorded, and what else is recorded against the property? |
| Property | An outside opinion of value and condition | If the payer stopped paying, would the property cover what is owed? |
| Payer | Credit report, identity, sometimes a short call | How likely is this person to keep paying? |
| Payments | Servicer history or bank records | Is the balance right and is the record what was described? |
The documents
The buyer reads the note for its exact terms: the amount, the rate, the payment, the due date, late charges, and what counts as default. They confirm that it is signed, that the names match those on the security instrument (the mortgage, deed of trust or land contract that ties the debt to the property), and that the property’s legal description is correct.
They also look at how the loan was made, because seller-financed loans on homes can fall under federal and state lending rules. Whether those apply to your note depends on when it was created and on the property, and an attorney is the person to ask.
The title
A title company or search firm reads the public record. The buyer wants to see the payer as owner, your lien recorded, and nothing ahead of it that they did not expect.
A search can turn up unpaid property taxes, court judgments against the payer, other mortgages, or a loan that was paid off and never formally released. Whether a given item ranks ahead of your lien or behind it depends on the type of claim and on state law.
The property
The property is the buyer’s fallback if the payments stop, so they want an independent view of what it would sell for. The methods, lightest first, are a desktop estimate, a drive-by opinion from a local real estate agent, and a full appraisal.
The value feeds a ratio called investment-to-value, or ITV: the price the buyer pays for the note divided by the value of the property. As an example with round figures, a buyer paying $70,000 for a note on a property valued at $100,000 has an ITV of 70%. A lower ratio leaves the buyer more cushion. The buyer orders this valuation, so check with them before you pay for an appraisal of your own.
The payer
A buyer who pulls the payer’s credit is reading it for the pattern of other debts and how they have been handled, more than for a single score.
Some buyers also ask the payer to confirm the loan in writing. In this document, often called an estoppel letter, the payer states the balance, the payment amount and the date paid to, and confirms that they have no dispute with the note holder.
If you would prefer the payer not be contacted until the sale is nearly certain, raise it before the checks are ordered and ask whether payer contact can be left until last.
The payment record
The buyer rebuilds the balance from the payments. Starting with the original amount, they apply each payment at the note’s rate and see whether they arrive at the balance you gave.
They count late payments too, and their idea of “pays on time” may be stricter than yours. A payment that arrives on the 20th when it was due on the 1st may feel fine to you and still go down as late in the buyer’s file.
What happens when something turns up
A finding leads to one of three results, and the buyer should tell you which and why.
The simplest is a fix. A missing release is obtained, a tax bill is paid or a lapsed insurance policy is reinstated, and the price stays where it was.
The second is a revised price, where the property is worth less than assumed or the payment record is weaker than described. The buyer then wants a higher return on their money to take the added risk. That means a lower price, or an offer to buy fewer payments through a partial.
The third is withdrawal, over a problem the buyer will not take on at any price, such as a lien they cannot get ahead of.
A revised price is fair when it traces to a specific finding you can see, such as the valuation or the title report, and when the new figure follows from the same math as the old one. It is unfair when the explanation is vague or the reduction is out of proportion to the finding, and those are the two sides of why a note offer drops before closing. Ask for the document and for the revised pricing worksheet. What your options are if you refuse the new price is set by your purchase agreement, so read that clause before you reply.
Keeping due diligence uneventful
- Describe the note as it is. Late payments, a second loan, a roof that needs work: anything stated up front is already in the price.
- Send a complete file. Gather the documents a note sale needs before the checks start, so that nothing waits on you.
- Check taxes and insurance yourself first. Call the county and the insurer.
- Ask what value the offer assumes. If you think the property is worth less, say so before the valuation does.
- Ask to see the findings. Ask for the title report and the valuation result where they affect your price.
Get the assumptions in writing
The fourth of those is the one to act on before you sign anything. Have the buyer write down the property value, lien position and payment record their price assumes, and keep that list. If the price moves later, set the buyer’s explanation against it: a change that matches a line on the list can be checked, and one that matches none is a question to put back to them.
Related questions
Will the buyer contact my payer during due diligence?
It depends on the buyer. Some ask the payer to confirm the balance and terms in writing, and others rely on the documents and the credit report. If you want payer contact held until the sale is nearly certain, ask for that at the start.
Who pays for the title search and the property valuation?
It varies by buyer. Some absorb these costs and some deduct them from your proceeds, and it may differ if the sale does not close. Ask before the work is ordered and get the answer in writing.
Can a buyer lower the offer after due diligence?
Yes, if the purchase agreement allows it and the checks found something that differs from what the offer assumed. Ask to see the finding and the revised worksheet. You are not obliged to accept a new price.