Being worn out by a note has two possible cures. A loan servicer takes over the collecting and leaves you the income, while a sale takes the note off your hands at a discount. Find out which part is wearing on you before you pay for the second one.
Fatigue is a sound reason to sell. It is also the reason that leads holders to give up more than they needed to, because on a bad day the relief feels worth any price. The sections below separate the monthly chore from the asset itself, so you can fix the part that bothers you and keep the rest if you want it.
Work out what you are tired of
“Collecting payments” covers several jobs, and each has its own fix.
| What is wearing on you | What fixes it |
|---|---|
| Logging checks, keeping a ledger, year-end statements | A loan servicer |
| Chasing a payer who pays late most months | A servicer, or a sale |
| Checking that property taxes and insurance are paid | A servicer with an escrow account |
| Worry that the payer will stop altogether | A full sale |
| Not wanting your spouse or children to inherit the job | A full sale, or a servicer set up now |
| The note outlasting the years you want to spend on it | A full sale, or a long partial |
The first three rows are paperwork, which someone else will do for a fee. The last three are about risk and time, and those only leave you when the note does.
Keeping the note and handing over the chore
A loan servicer is a company that collects the payment on your behalf. The payer sends money to the servicer, which records it, divides it into principal and interest, sends late notices, prepares the year-end statements and forwards the money to your bank account. Some servicers will also run an escrow account, which is money collected with each payment and set aside for the property taxes and insurance.
The service is paid for by a fee. Once you are clear on what a note servicing company does and what it leaves to you, ask each servicer for its charges in writing, including any setup cost. In return the payer deals with a company that sends a formal notice when a payment is missed, and that is harder to put off than a call from the person they bought the house from.
The risk stays with you. If the payer stops, the decision about what happens next is still yours, and so is the cost of acting on it. For a holder whose complaint is the monthly routine, though, a servicer removes the routine and leaves every remaining dollar of the note in place. The records it keeps are also the kind of payment history a buyer asks for, so a later sale is easier to price.
Selling the whole note
A full sale is the only choice that ends your part completely. The buyer takes over the payments, the payer and the risk, and you receive a single sum at closing.
What you pay for that is the discount on the note, the gap between the balance still owed and the price the buyer pays. A buyer is handing over cash today for money that arrives over years, and wants a return for the wait and for the chance that the payer stops.
Here is a made-up example with round figures. If $90,000 is still owed and a buyer pays $81,000, the discount is $9,000, which is 10% of the balance. Your own figure could be smaller or larger, since it turns on the payer’s record, the equity in the property and how many years are left, and those are the details we ask for when you have us price the note. Whatever number you are quoted, set it against a servicer’s fee added up over the same years, because those are the two prices of getting rid of the chore.
Selling some payments and taking a break
In a partial purchase you sell a set number of your upcoming payments. The buyer collects them, and the note then returns to you with the payments that remain. During those years the buyer or the buyer’s servicer does the collecting, so you receive a lump sum and some time off.
The catch for a tired holder is in the word “returns”. When the partial ends you are the lender again, perhaps at an age when you want the job even less. A partial therefore fits someone who wants a pause and some cash, and fits poorly if the aim is never to think about the note again. It also needs a payer with a steady record, because the buyer is counting on those particular payments arriving. Before agreeing to one, use the partial purchases guide to check how the return works and what the agreement should say about it.
Signs that you should keep it
Keeping the note and adding a servicer is the stronger choice when the payer has paid on time for years, the income is part of your monthly budget, you have no particular use for a lump sum, and the bookkeeping is your only complaint. A note that performs well is hard to replace. The cash from a sale has to be put somewhere, and it may earn less there than the note was paying you, which is the sum at the centre of deciding whether to sell your note or keep it.
Signs that you should sell
- The trouble is the payer, and you expect it to get worse.
- You do not want to be the person who decides about foreclosure if payments stop.
- Your spouse or children would not know what to do with the note if it passed to them.
- You have a better use for the money than waiting out the remaining term.
If the payer is already slipping, timing matters. Buyers price the risk they can see in the record, so the same note is worth more to them before a string of missed payments than after one.
Papers to pull together either way
A servicer and a buyer ask for much the same file, so collecting it now serves whichever way you go.
- A copy of the note and the mortgage, deed of trust or land contract that secures it.
- Your payment record: dates and amounts, from bank statements or a ledger.
- The current balance and the number of payments left.
- What you know about the property, including its condition and whether taxes and insurance are current.
Putting the two prices side by side
With that file you can get both numbers. Ask one or two servicers what they would charge, and get a price for a full sale along with a view on whether the payer’s record is steady enough for a partial. A servicer’s fee over the remaining years against a discount today is a comparison you can make on one sheet of paper. If neither price settles it, the chore may not be the real complaint. You may want to stop being the bank on a property you sold, or one of the other reasons holders sell a note may be closer to yours than tiredness is.
Related questions
Can I hire a servicer on a note I have been collecting myself for years?
Yes. You and the servicer set up the account using the note and your payment record, and the payer is told in writing where to send payments from then on. The terms of the note do not change.
Will selling my note change anything for the person paying me?
Their rate, payment amount and payoff date stay the same. They are told who the new owner is and where to send payments. Nothing else about their loan changes.
Is it worth selling a note with only a few years left on it?
It depends on why you are selling. A short note has little interest left to earn, so most of what remains is your own principal coming back, and the discount comes out of that. Unless the payer worries you or you need the money now, waiting brings in the full amount.