Purchase and sale of mortgage notes
It may be common these days to see a sign that says “mortgage notes for sale,” but since it’s all about money and business, things can get complicated. Here is a guide intended to help each individual choose the right mortgage note and how to wisely shop for notes for sale.
A mortgage note is proof that a debt was owed on land or property. When a person puts his property in mortgage, it is like saying that if he cannot pay, then the property will pay the fee or the cost that the debtor could not pay. Some people sell their mortgaged land or property and these are called mortgage notes.
First, contact a mortgage broker. They can be found online, in newspaper ads, or in the local phone book. It might also be helpful to ask friends and colleagues for references, since trust is already established. The job of the mortgage broker is something like a matchmaker, since its function is to find the note that best suits the client.
It is good practice to carefully review the mortgage note with the broker. Since it will come with some terms, it is best to ask the broker what they mean and how to make the investment. The broker is supposed to discuss the investment opportunities and the interest rate as a return on investment. It would also be helpful to contact the bank or company that processed the note for further understanding and practical advice.
When purchasing a mortgage note, a promissory note is required. This formalizes the agreement and binds it to legal terms, which is safer since the previous owner will have to pay the new lender (the one who buys the note) a certain amount of money. The promissory note must also include all of the terms and agreements that are written on the promissory note.
When buying these types of notes, an unbiased third party is usually involved and that person is in charge of setting up an escrow account. A note broker or real estate broker is someone who is authorized to set up an escrow account and manage the proceeds of the mortgage note.
Once purchased, the buyer must deposit the funds into the escrow account and the person managing the account will be responsible for disbursing the money to the seller.
The new owner of the mortgage note should receive monthly payments since they now own the property. Again, the money must be deposited into the escrow account and in the same way, the administrator of the account will be the one who disburses the funds.
