A partial purchase agreement should state exactly which payments are sold, how an early payoff is divided, who acts and who pays if the payer defaults, and how the note returns to you. If any of these is vague or missing, the price on the first page means less than it appears to.
A full sale ends at closing. A partial ties you to the buyer for years, and the agreement is the only thing that governs that time. What follows is a reading guide to it, clause by clause. A guide cannot replace legal advice, and an attorney should review the document before you sign. For how the arrangement works as a whole, start with the partial purchases guide.
Two buyers can offer the same cash for the same payments and still be offering different deals. One returns the note automatically and divides a payoff fairly. The other keeps discretion over everything and can charge costs to your share. The difference shows only when something happens, and by then the time to negotiate has passed. When you have us price your note and a partial offer comes back, we pass on the buyer’s terms with it, so payoff, default and return can be compared across buyers before you choose.
What exactly is being sold
The agreement should identify the note beyond doubt: the parties, the date, the original amount, the property and the recording details of the mortgage or deed of trust. Then it should describe the purchased payments by number and amount. Wording such as “the next 60 monthly payments, each in the amount stated in the note, beginning with the payment due on” a named date leaves nothing to argue about.
The same section should deal with some smaller items.
- Late fees. Who receives a late fee the payer pays during the partial?
- Extra principal. If the payer pays more than the scheduled amount, where does the extra go?
- Taxes and insurance. If the payment includes an escrow amount for property taxes or insurance, that money is not part of what is sold and should be handled separately.
The price and what comes out of it
The figure that matters is the amount that reaches your bank account. The agreement or the closing statement should list the purchase price and each cost taken from it, such as title work, recording, document preparation and any servicing setup fee. Ask who pays each one.
Ask too for the yield the buyer used. It may not appear in the agreement, but the payoff clause depends on it, so it should be written somewhere you can point to.
Payoff, default and the end
These are the events that can change the plan. Each has a page of its own, so what follows is only the question to put to the clause.
Early payoff
Can the buyer show you, with numbers, what happens if the payer pays off early at two different points in the partial, and how the payoff is divided each time? A clause with a formula in it makes that easy. Where there is no formula, ask for one to be added.
Default
After reading the clause you should be able to say what happens if the payer stops paying: who makes the decisions, who pays the attorney, and what you would receive from a recovery. If any of those is still unclear, the clause needs more work before you sign it.
The end of the partial
Does the note come back without you having to ask, and does the clause name who prepares and records the reassignment? Those two answers decide how much chasing getting your note back after a partial will take.
What you are promising
Every note sale agreement contains representations and warranties. These are statements you make about the note that the buyer relies on: that you own it, that the balance and payment history are as stated, that the payer has no claim against you, that the lien is in the position you said, and that you have not sold or pledged the note to anyone else.
These are reasonable, and you should only sign them if they are true. If a statement turns out to be false, expect the agreement to let the buyer require you to buy the payments back. That is different from recourse, which makes you responsible if the payer simply stops paying. A buy-back for a false statement is an ordinary term. A buy-back for the payer’s default leaves much of the risk with you, so understand it fully before you accept it.
Tell the buyer about anything that does not fit, such as a late payment or an informal change you agreed with the payer. Disclosed at the start, it gets priced. Discovered later, it becomes a breach.
Servicing, records and transfers
You will not be collecting the payments, so you need a way to see them. Look for a named servicing company, a statement of who pays its fee, and a right to see the payment ledger on request or once a year. Look also for a duty on the buyer to tell you promptly about a missed payment, a payoff request, or a lapse in the property’s taxes or insurance.
The agreement should also say where the original note and security document are kept during the partial.
If the buyer sells the note on
A partial can outlast the company that bought it. The agreement should say that your rights bind anyone the buyer transfers the note to, and that you will be told of a transfer. Some sellers ask for a memorandum of the agreement to be recorded in the public record, so that anyone searching the title sees your interest. Whether that is available and sensible in your state is a question for your attorney.
The clauses side by side
Once you have read the document through, use this table to mark each clause as settled or still open.
| Clause | What it should say | Warning sign |
|---|---|---|
| Payments sold | The number of payments, the amount of each, and the first and last due dates | A date range with no count, or “payments as determined by buyer” |
| Purchase price | The cash you receive and every deduction from it | Costs “to be determined at closing” |
| Early payoff | A formula for the buyer’s share, tied to the yield used to price the deal | No formula, a minimum return, or a fee charged to you |
| Default | Who decides, who pays costs, how a recovery is divided, your right to buy back | Buyer’s sole discretion, or recourse against you |
| Return of the note | Automatic reassignment once the count is reached, and who records it | Return “on request” or at the buyer’s convenience |
| Servicing | Who collects, who pays the fee, your access to the ledger | Buyer collects directly with no reporting to you |
| Transfer by the buyer | Any later holder is bound by the same terms | Free transfer with no mention of your rights |
When the draft arrives
- Read the whole agreement and not a summary of it.
- Ask the buyer to walk through the payoff, default and return clauses with numbers from your note.
- Get every cost in writing.
- Have an attorney read it. Whether you need a lawyer to sell a note covers what that involves.
- Take the time you need. A buyer who presses for a signature today is showing you how they will behave for the length of the partial.
If you are still at the offer stage, ask for the draft agreement along with the price. A price cannot be judged without its terms, and reading them early leaves time to ask for changes while the buyer still wants the deal.
Related questions
Is a partial purchase agreement a standard form?
No. Each buyer uses its own document, and the terms differ. That is why two partial offers at the same price can be very different deals.
Can I ask a buyer to change the agreement?
Yes. You can ask for a payoff formula, a notice clause or an automatic return to be added. Some buyers will agree and some will not, which is useful to learn before you commit.
What is recourse in a partial agreement?
Recourse is a term that makes you repay the buyer or replace the note if the payer defaults. It leaves much of the risk with you, so check whether the agreement contains it and ask an attorney what it would mean for you.