At closing you sign the documents that transfer the note and the lien, deliver the original note, and receive payment. A neutral closing agent can hold the documents and the money so that neither side has to trust the other to go first.
A note closing is lighter than a property closing: nobody moves, no keys change hands and the payer is not in the room. The order of events still deserves attention, because you are parting with an original document that is hard to replace.
What you sign
| Document | What it does | Recorded with the county? |
|---|---|---|
| Note purchase agreement | The contract: price, conditions, what you state to be true | No |
| Endorsement or allonge | Transfers the note itself to the buyer | No |
| Assignment | Transfers the mortgage, deed of trust or land contract | Yes |
| Notice to the payer | Tells the payer the note has been sold and where to pay | No |
| Seller’s statement or affidavit | Confirms facts such as the balance and that you have not sold the note elsewhere | No |
The note purchase agreement may already be signed by the time you reach closing, since it is the document by which you accepted the offer. The transfer documents are the ones signed on the day.
The note and the lien travel by separate papers. The note is transferred by endorsement, meaning you sign it over to the buyer on the note itself or on a page attached to it called an allonge. The lien, your recorded claim on the property, is transferred by an assignment that you sign before a notary and that is then recorded, so the public record shows the new holder.
A partial sale adds a partial purchase agreement, which fixes how many payments are sold and how the note is assigned back to you afterwards. Read that one slowest of all, because it governs your position for years afterwards.
Who runs the closing
The buyer, the state and the size of the note decide which of these arrangements you get.
| Arrangement | How it works | What to check |
|---|---|---|
| Title or escrow company | A neutral company receives your signed documents and the buyer’s funds, then releases each to the other side | That you can reach the company on a number you looked up yourself |
| Attorney | A lawyer performs the same role, and may also prepare the documents | Whose attorney it is, since the buyer’s lawyer does not represent you |
| Direct with the buyer | You send documents to the buyer or its document custodian, and the buyer pays on receipt | Exactly when payment is released in relation to when the note arrives |
Escrow means a third party holds something for both sides until agreed conditions are met. Whoever acts as escrow should be working from written closing instructions that you and the buyer have both seen, stating what must be delivered, in what order, and what triggers the payment. Ask for a copy if one has not been sent.
If you have no offer yet, the closing arrangement is something to ask about along with the price. When you have the note priced, ask each buyer who would run the closing and who pays the agent.
The title work that remains
The main title search is run during the buyer’s earlier checks. By closing some time has passed, so the buyer may have it brought up to date to confirm that nothing new has been recorded against the property.
Some buyers also obtain title insurance on the transfer. This is a policy, or an addition to an existing policy, that protects the buyer if the lien turns out to rank differently from what the search showed. Practice differs by buyer and by state. If a policy is being bought on your sale, find out who is paying for it.
Delivering the original note
A buyer needs the endorsed original in order to stand in your place as holder, so once it leaves your hands you want to be certain that payment follows.
- Send the original only after the purchase agreement is signed by both sides and you have written closing instructions.
- Send it to the address in those instructions. Where a closing agent is involved, expect that to be the agent’s address and query it if it is the buyer’s.
- Use a courier with tracking and a signature on delivery.
- Keep a complete copy of the note, front and back, with the endorsement.
- Do not endorse the note in blank, meaning with no buyer named, unless your instructions call for it and you understand why.
A note that cannot be found has to be dealt with well before closing day. A buyer who agrees to proceed will ask for a sworn statement about the loss and may want other protection.
How and when you are paid
Payment comes by wire transfer to your bank account, or by check if that is what you and the buyer agreed. The closing instructions say what releases it. Two common triggers are the closing agent’s receipt of every signed document together with the original note, and the buyer’s review of the originals once they arrive.
Settle the amount first. You should be shown a closing statement that starts with the purchase price, lists anything added or taken off, and ends with the figure being sent to you. Then ask which event releases the money and how long after that event it should arrive. Ask as well about any payment that falls due around the closing date. The agreement names the first payment that belongs to the buyer, and anything due before it is yours.
Wire fraud is a hazard at any closing. You are receiving money, which exposes you less than the party sending it, but give your bank details by phone or through a secure portal, and confirm them with a call to a number you already trust.
After the money arrives
Some things now happen without you. The assignment goes to the county for recording. Whether your payment waits for the recorded copy to come back depends on the closing instructions, so check that point in advance. The payer is told in writing where to send payments from now on, as described in what happens to your payer after you sell. The property’s insurance policy needs to name the new note holder, and you can ask the buyer to confirm that they have arranged it.
Two jobs stay with you. If the payer sends you a payment that now belongs to the buyer, forward it promptly. And keep the closing statement, the purchase agreement and copies of everything you signed, with a second set for your CPA.
A checklist for closing day
- Both sides have signed the purchase agreement.
- You have written closing instructions and know who the closing agent is.
- You have seen a closing statement and the net figure matches what you were told.
- You have read every document you are about to sign.
- A notary is booked and you have photo ID.
- You have copied the original note and know where to send it.
- Your bank details have been given and confirmed by phone.
If item 3 is the one you cannot tick, stop there until you can. The same goes for item 2, since without written instructions there is no agreed trigger for payment and the original note should stay where it is. Each item is settled at an earlier stage of the sale, so a gap on closing day is a question for the buyer or the closing agent, and the signing can wait for the answer.
Related questions
Do I have to attend a closing in person?
A note sale can close without anyone gathering in one room. You sign with a notary near you, send the documents and the original note as the closing instructions say, and payment is sent to your bank. Ask the closing agent if you would prefer to sign at their office.
Should I send the original note before I am paid?
Follow the written closing instructions, and send it only once both sides have signed the purchase agreement. Where a neutral closing agent is used, the note goes to the agent, who releases it to the buyer when the funds are in hand.
Does the payer sign anything at closing?
No. The payer is not a party to the sale. They receive written notice afterwards telling them who holds the note and where to send payments.