Pennsylvania notes are often small balances on older houses, sold by owners who carried the financing. We put yours in front of several buyers and show the worksheet behind each offer.
What a Pennsylvania note holder should know before accepting a number.
The same worksheet comes with every offer.
| Remaining balance | $129,400 |
|---|---|
| Payments left | 168 |
| Buyer’s target yield | 8.0% |
| Purchase price | $115,000 |
| Discount from balance | 11.1% |
| Our fee | shown on every offer |
| Sell the whole note | Sell 60 payments | Keep it | |
|---|---|---|---|
| Cash today | $115,000 | $56,200 | $0 |
| Payments still coming to you | None | 108 payments of $1,140 | 168 payments of $1,140 |
| Total you receive | $115,000 | $179,320 | $191,520 |
| What you give up | Every future payment | The next five years | A lump sum now |
Illustrative example. Totals add up the payments as scheduled; they assume the payer keeps paying and are not adjusted for the value of money over time.
The promissory noteThe mortgage or deed of trustA payment historyThe closing statement from the saleA lot of Pennsylvania’s housing is old, and a lot of it is modestly priced: row homes in Philadelphia, frame houses in Pittsburgh and the river towns around it, doubles in Allentown, Scranton and Erie. Where a bank has little appetite for a small loan on a house like these, the owner sells on terms and becomes the lender. The notes that result are small-balance ones, held by former landlords and by families who sold a parent’s home.
Outside the cities the picture changes to farmland in Lancaster County and the central valleys, vacation homes in the Poconos, and cabins and hunting camps across the northern counties. Some of these were sold with a mortgage and some on an installment land contract, where the seller keeps title until the price is paid.
Pennsylvania is commonly described as a mortgage state, as distinct from the states where a deed of trust is the usual document. The mortgage is the recorded document that makes the property security for the note. If the payer defaults, foreclosure is generally judicial, meaning the note holder files a case in the county court and the court oversees the sale. The steps involved, and how an installment contract is treated, are questions to put to a Pennsylvania attorney or title company.
A note buyer works backward from what they need to earn each year on the money they pay you. That is why they pay less than the balance owed, and the more risk they see, the lower the price goes.
A court foreclosure carries legal costs that do not shrink much for a small loan. As an example with made-up round figures, a $6,000 legal bill is 15% of a $40,000 balance and 4% of a $150,000 one. The buyer of the smaller note sees the same possible cost as a much bigger share of what they stand to recover, and prices for it. The arithmetic applies however reliable your payer is. On a small balance, ask for a price on the note before you decide anything, and ask what the fixed costs do to the figure.
Older homes vary widely in condition, so a buyer will ask for recent photos and proof of insurance and may order an outside valuation, because the type and condition of the property feed into the price.
Buyers also check for claims that would be paid before yours. A lien is a legal claim against a property, and unpaid property taxes, along with some municipal charges, can come before a mortgage. If your payer has kept the taxes current, have the receipts ready.
At closing you endorse the note and sign an assignment of mortgage, which is recorded in the county where the property sits. Check that your original mortgage was recorded there too. A buyer’s title search will look for it, and an offer made before the search can be revised if it is missing.
Write down the balance, the monthly payment, how long the payer has been paying, and the property address. Add the tax receipts and a few current photos. Then work out one more figure for yourself: what the remaining payments would bring in if you kept collecting them. On a small balance that is the number to set any offer against, and sometimes it is the reason to keep the note.
It can be, but check the numbers first. Some costs of buying a note are fixed, so they take a larger share of a small balance. Ask to see the worksheet behind any offer, and compare the price with what the remaining payments would bring you if you kept the note.
Age alone does not. Condition does. A buyer wants to know the house is lived in, insured and maintained, so recent photos and proof of insurance help more than anything you can say about it.
Tell us before we ask for offers. Unpaid property taxes can come ahead of your mortgage, so a buyer will find them in the title search and adjust the price. Knowing early lets it be dealt with openly.
Yes, some buyers purchase them. Fewer do than buy mortgage notes, and the rules for ending a contract after default are specific to the state. An attorney in Pennsylvania can tell you how yours would be treated.