When Selling a Note Makes Sense

Selling a note makes sense when the cash does more for you today than the payments would over time, or when the risk of holding the note has grown beyond what you want to carry. An offer arriving in the mail is neither of those.

Nobody wakes up wanting to sell a note. Something happens first: a death in the family, a divorce, a payer who has gone quiet, a bill, a plan. This guide takes those situations one at a time and says, for each, what matters most, which kind of sale tends to fit, and when the honest answer is to keep the note.

Start with your reason for selling

A buyer’s first question is about the note. Yours should be about why you are here, because the reason settles a good deal before any price is discussed. It fixes how much cash you need: a set amount, such as a debt or a down payment, is a different brief from “as much as possible”. It fixes when you need it, and a deadline you did not choose narrows the options that are realistic. It also tells you whether you want the note afterwards, since some holders want the income back later and others never want to think about the payer again.

Put the amount, the date and your answer about the note’s future on one sheet of paper before you ask anyone for a quote, then judge every offer you receive against that sheet.

Sell it all, sell part of it, or keep it

Whatever brought you here, those are the choices. A full sale transfers every remaining payment to a buyer for one lump sum. A partial hands the buyer a fixed run of payments for a smaller lump sum, and the note is assigned back to you once they have been collected. Keeping it means nothing changes.

In both kinds of sale the price is less than the money owed. Buyers pay an amount today that lets the payments deliver the return they need, called the yield, and the gap between what is owed and what they pay is the discount.

Here is one note, priced each way. It pays $1,140 a month, has 168 payments left at 6% interest, and about $129,400 is still owed. The buyer wants an 8% yield.

	Sell the whole note	Sell 60 payments	Keep it
Cash today	$115,000	$56,200	$0
Payments still coming to you	None	108 of $1,140	168 of $1,140
Total you receive	$115,000	$179,320	$191,520
Risk you still carry	None	The back end of the note	All of it

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.

Each situation below comes down to which of those columns fits, so it is worth keeping the table in view as you read on.

You inherited a note, or an estate holds one

An heir did not negotiate the note’s terms, may never have met the payer, and may have to hunt for the paperwork. Selling is therefore a later job. The earlier ones are finding out what the note is, confirming that payments are still arriving, and establishing who has the legal authority to act.

Authority is what holds estate sales up. A note in the name of someone who has died generally cannot be assigned to a buyer until a person with authority, such as an executor or administrator, can sign, and how that authority is granted depends on the state and on how the note was held.

A full sale suits an estate with several heirs because a lump sum divides to the dollar, while a monthly payment shared between households needs someone to collect it, split it and keep the record for years. Where one heir wants the income and the others want cash, there are ways to give each what they want. See what heirs should do first and, for executors, settling an estate that holds a note.

You are dividing property in a divorce

A note is awkward to split. Two former spouses who each own half of one payment stream are still tied together for years, and each depends on the other to cooperate if the payer falls behind. The alternatives are to turn the note into cash, or to award it whole to one spouse with other property going to the other.

Both of those need a figure for what the note is worth today, and the balance owed overstates it. A priced offer, with its worksheet, gives both sides and both attorneys a number that came from the market and from neither spouse.

Permission matters here more than price. Selling a shared asset while a divorce is open can require both signatures and, in some cases, the court’s approval. Selling a note in a divorce sets out the order to do things in.

You are retiring, or already have

A note that pays reliably every month is already doing what a retiree wants savings to do, which makes retirement the situation where keeping the note deserves the longest look. Selling trades a larger total for a smaller lump sum, and that only helps if the lump sum has a job.

Good reasons do exist. You may want to stop depending on one payer and one property. You may be moving and want fewer loose ends, or want to clear a mortgage before your income drops. And you may be thinking about what happens to the note if you are no longer able to manage it.

A partial is the middle path, with cash for the early years and the monthly income returning later. If you are selling a note to fund retirement, most of the work is weighing that income against a lump sum.

Your payer is late, or has stopped paying

Buyers treat these as separate cases, and so should you.

A payer who is late but still paying has damaged the record that buyers rely on. Seasoning is the term for the track record of payments made on a note. A long, clean record raises the price, and a patchy one lowers it because the buyer has to allow for the chance that late becomes never. The note can still be priced, and it is worth finding out why the payer is late before you ask. See selling a note when the payer is late.

A payer who has stopped altogether has turned your note into what the market calls a non-performing note. With no payments to price, buyers price the property, the cost and time of getting to it, and the chance of a workout, and the discount is much deeper. Against that, the alternative is to enforce the note yourself, which costs money up front and takes however long your state’s process takes, so selling a note when the payer has stopped paying is a choice between routes that each cost something.

In either case, give the buyer the true payment record at the start. It is checked against bank or servicer records before funding, and an offer built on a wrong history gets cut at that point.

You want to pay off debt

This is a comparison between two costs. On one side is what the debt costs you each year in interest. On the other is what you give up by selling payments at a discount. If the debt is expensive and the amount is modest, selling a slice of the note can leave you better off, and if the debt is cheap you would be paying more for the cash than the debt was costing you.

Debt is also the clearest case for a partial, because the amount you need is known to the dollar. Selling the whole note to clear a debt a third of its size means taking the discount on money you did not need. Selling a note to pay off debt shows how to size the sale to the balance.

You want to buy another property

A note is equity you cannot spend. If you have found a property you want, turning some or all of the note into a down payment can make sense, especially when the alternative is borrowing more on the new purchase.

The difficulty is timing. A note sale has its own steps: a buyer reviews the file, checks title and values the property before funding. Those steps have to finish before your purchase closes, so the time to start the note sale is while you are still looking at properties.

You are facing a medical or family emergency

Pressure does not change what your note is worth, only how carefully you look at the offer in front of you, so an emergency is when a second price earns its keep.

Start by working out the real amount you need, which may be much smaller than the whole note. Then get the paperwork together straight away, since a missing document is a delay you can prevent and a title company’s queue is one you cannot. We do not promise a closing date, and you should be wary of anyone who promises one before seeing your file.

When keeping the note is the better choice

Selling always costs something, which is why the “keep it” column in the table above has the largest total. Keeping the note tends to be right when:

You have no particular use for a lump sum.
The payer has a long on-time record and real equity in the property.
The monthly payment is part of what you live on.
The only reason to sell is that an unsolicited letter arrived with a number on it.

Telling you to keep your note is an outcome we are comfortable with. A quote still has a use in that case, because it tells you what the asset is worth should your situation change.

Which option to look at first

Your situation	Look first at	Main thing to settle
Inherited note, several heirs	A full sale	Who has authority to sign
Divorce	A full sale, or one spouse keeps it	Agreement or court approval
Retirement	Keeping it, or a partial	What the lump sum is for
Payer is late	Waiting, or a full sale	Why the payer is late
Payer has stopped	A full sale, or enforcing the note	Property value and your state’s process
Paying off debt	A partial sized to the debt	The cost of the debt
Buying property	A partial or a full sale	Timing against your purchase
Emergency	A partial sized to the bill	The real amount needed

Treat the middle column as a starting point, since your payer, your property and your paperwork can move the answer.

A price is what turns the starting point into a decision. When you send us your note details, we ask more than one buyer to price the note and bring you what comes back. If the note suits a partial, which mainly means a payer with a dependable record and enough payments left to divide, you will see that priced as well. Each offer arrives with the worksheet behind it, showing the balance, the yield, the discount and what we earn. Asking costs nothing and commits you to nothing, and if the numbers favor keeping the note, that is what we will tell you.

What to have ready before you ask for a price

Whatever the situation, a buyer prices from the same handful of items, and the first offer is more accurate when they are all on the table.

A copy of the note, and of the recorded mortgage, deed of trust or contract that secures it.
The payment record: what has been paid, when, and whether anything was late.
The current balance, the payment amount, the interest rate and the number of payments left.
The property address and anything you know about its condition and value.
For estates and divorces, the document that shows who can sign.

Tax is the other thing to raise early. Selling a note can change what you owe and when, and the rules differ by situation and by state, so the conversation with a CPA belongs before you sign anything.

With the file together, go back to the sheet of paper from the first section. The amount, the date and whether you want the note afterwards are what every figure you are shown should be measured against, in place of the example numbers in the table near the top of this page.