Real estate buyers mostly pay for properties in installments, which can last as long as 30 years and over. As the seller, your preference is in receiving a lump sum of cash today so that you can sort out your present obligations. Because of this mismatch between a buyer’s payment pattern and a seller’s preference, there is a need to bridge the preferential gap. A mortgage note does this perfectly well.
Basically defined, a mortgage note is a type of promissory note which details how you must pay for a loan you received to purchase real estate. It is a legal document which bears the loan amount, the terms of repayment complete with the duration, and interest rate. Whenever a borrower makes direct payments to a private entity or person, the entity in question may choose to receive the monthly payments or sell the note upfront for a lump sum. If, as the entity, you decide to sell your mortgage note, there are some steps you must follow for a successful sale. Below are the five main steps.
Requesting a Quote
When selling a mortgage note through established companies such as American Equity Funding, you will be required to complete a short worksheet to receive a quote. On the worksheet, you will be directed on the kind of information to provide so that the company can have a complete picture of the mortgage note they are buying. Once the worksheet is complete, you can submit it by fax or online.
Providing Document Copies
There are three critical documents which mortgage note buyers would want to see before proceeding any further with the transaction. These are:
The Settlement Statement – This form details the services and fees charged to the borrower when applying for the mortgage.
Promissory Note – This is the written promise by the borrower to repay a given amount of money together with interest for a specific duration.
The Contract, Mortgage, or Trust Deed – This document details all the parties involved in the mortgage loan arrangement. It pledges real property to secure the loan.
It is also important to know where the originals of these documents are because you will require them at closing.
Accept Offer and Agreement
At this stage, you will be expected to either accept or reject the offer. Once you accept, a written agreement will be made stating the price, specific conditions of closing, and the bearer of the costs.
Mortgage Note Review and Appraisal
The mortgage note buyer will conduct a detailed review known as due diligence to establish tax obligations, insurance status, payment history, and the existing title report. If required, they may request additional copies of documents.
The current property value will also be assessed during the appraisal phase so that the investor can be sure the property value is either equal to or greater than the price it is sold at.
Title Search and Closing
The title report is the final stage and involves verification of the property ownership and any lien attached to the property from a previous mortgage. A title report can give you all this information at a glance including the original sale date. Once everything has been verified, and both parties are satisfied, a title company is used to handle any exchange and transfer of documents as well as the money.
Typically, the funds will be in the form of a wire transfer or a cashier’s check. Your attorney should review and advise you on any other technical procedures regarding the closing process.