A note purchase agreement is the contract between you and the buyer of your note. It fixes the price, identifies exactly what is being sold, lists the conditions under which the buyer may change or cancel the deal, and records the promises you make about the note.
When it gets signed
A quote or an offer is a proposal, and having your note priced commits you to nothing. The purchase agreement is what turns an offer into a commitment on both sides. In the usual order of a note sale, it is signed after you accept an offer but before the buyer has finished due diligence, the checks on the note, the payer and the property that come before funding. You are therefore signing while some of those checks are still open, which is why so much of the document deals with what happens if one of them produces a surprise.
The draft comes from the buyer or the buyer’s attorney. Read it as a document written to protect the buyer first, and pay particular attention to the clauses on price, on your own statements and on recourse.
Price adjustment
An agreement will generally let the buyer revisit the price if due diligence shows the note differs from what was described, and that is reasonable. The wording decides how far the right goes. A clause tied to named facts, such as a lower balance, a title problem or a late payment, limits repricing to things that can be shown to you, whereas a general right to adjust leaves the price open until the day of funding. The same distinction is how you judge an offer that drops before closing: a fair cut points to a fact the buyer can show you.
The statements you make about the note
Lawyers call these representations and warranties. In them you confirm facts such as your ownership, the balance, the payment record and the absence of any dispute with the payer. They survive the sale, so if one proves untrue the buyer may have a claim against you later. Read each as a question about whether you know it to be so, and where you do not, say so and have the wording changed before you sign.
Recourse
Recourse means the buyer can come back to you if the payer stops paying. In a sale without recourse, the payer’s future behavior is the buyer’s risk. An agreement can instead require you to buy the note back if the payer defaults within a stated period after closing. Find the clause, and if a buyback is there, weigh the offer as one that carries that obligation.
The other sections
| Section | What it does | What to look for |
|---|---|---|
| The note being sold | Identifies the note, the security document, the property, the balance and the next payment due. | Figures that match your own records. |
| Conditions | Lists what must be true before the buyer has to fund, such as clear title and a confirmed balance. | Specific wording, since a vague condition gives the buyer room to reprice. |
| Costs | Says who pays for title work, recording and other closing costs. | An itemized list in place of a general phrase. |
| Closing | Sets the target date, who holds the documents and how funds are released. | What happens if the date passes. |
| Remedies | Says what each side can do if the other does not perform. | Anything that makes you liable for the buyer’s costs. |
What the agreement leaves to other documents
Signing the agreement commits you to sell. Ownership passes later, at closing, through the endorsement of the note, sometimes on an allonge, and through a recorded assignment of mortgage or deed of trust.
A partial sale, in which you sell a set number of payments and keep the rest, uses a different contract, and what to look for in a partial purchase agreement starts with its extra terms for early payoff, default and the return of the note.
Reading it before you sign
Go through it from start to finish with your own records beside you and check every figure: the balance, the payment, the next due date, the property description. Ask for anything unclear to be explained in plain words and confirmed in writing. Because this is a legal contract containing promises that outlast the sale, an attorney’s review is worth paying for, above all on the representations and recourse sections. Changes are far easier to get while the draft is unsigned, so send your questions and the attorney’s comments back to the buyer together and wait for a revised draft.
Related questions
Who writes the note purchase agreement?
The buyer or the buyer's attorney normally prepares it. That means it is written from the buyer's side, which is a good reason to read it closely and have your own attorney review it.
Does signing the agreement transfer my note?
Signing commits you to sell, and ownership moves later, at closing, through the endorsement of the note and the recorded assignment of the mortgage or deed of trust.
What does without recourse mean in a note sale?
It means the buyer cannot come back to you simply because the payer stops paying after the sale. You remain answerable for the statements you made about the note in the agreement.