Selling of promissory notes has become common, especially in the real estate sector. Are you interested in selling a promissory note? Well, you are in the right place. Below is an in-depth guide on how to sell a promissory note.
Before we dive into the specifics, you should know that the process of selling a promissory note is relatively easy provided you prepare early in advance and locate a professional note buyer. By the end of this guide, you should be able to sell a promissory note without facing any difficulties.
What a Promissory Note Is
For a contract to be legally enforceable, it must contain some legal terms and conditions. A promissory note is a document containing a written promise to pay a certain amount of money to an individual/company at a stipulated date. It’s an agreement between the buyer and seller or lender and borrower. It’s a promise signed by both parties guaranteeing the buyer or borrower will follow the agreed repayment plan.
Additionally, promissory notes also go hand in hand with a collateralizing document, which can either be a mortgage or a deed of trust. The collateralizing document acts as a security for the promissory note.
What Is The Purpose of a Promissory Note?
A promissory note is a valuable tool for both the buyer/borrower and lender/financial institution. It acts as a security for both parties. There is no doubt that there has been an increase in mortgage rates as well as both commercial and residential property. This has made it hard for buyers and sellers to make sales. Also, folks who do not have a good credit score can find it hard to get a loan.
A promissory note comes in quite handy in helping borrowers bypass the traditional lending system, which is enforced by strict rules. A promissory note acts as security for both parties. It protects the lender from default and the borrower from unethical lending practices.
How Do Promissory Notes Work and Who Uses Them?
At the beginning of this article, we said that both buyers and sellers could use promissory notes. It is beneficial to buyers, especially those that don’t meet the standard mortgage requirements. The promissory note showcases the buyer’s agreement to pay back. And, the collateral acts as the security. Defaulting will lead to confiscation of the property.
Sellers can also benefit from using a promissory note. It enables smooth selling of property as well as the ability to transfer ownership of the note. Moreover, it acts as security in case the borrower fails to pay as per the stipulated guidelines.
Reason Why You Might Want to Sell a Promissory Note?
1. The need to turn a non-liquid asset into a liquid asset in a short period. As you may know, carrying a note for an extended period is risky. Therefore, the earlier you sell your note, the safer you are.
2. Preferring to get a lump sum of cash instead of receiving small payments over a long period.
3. Facing an urgent emergency where you may need to liquidate your asset for money fast.
4. Not wanting to deal with IRS regulations, endless paperwork, and accounting.
Tips on How to Sell a Promissory Note
Are you planning to sell a promissory note anytime soon? Whether it is a business, commercial, or residential note, here are some tips to guide you.
Presentation and Storage of Relevant Documents
Several documents should be presented when using a promissory note. They include a deed of trust, property transfer letter, and all payment records. Once submitted, these documents should be appropriately stored for future reference.
Identify a Reputable Note Buyer
You should also highly consider who you are going to sell your note to. Make sure that they are reputable and adhere to a professional code of conduct. The best option is to sell your note to a Note Buying Company. They are the most suitable option compared to selling notes to individuals who might not have sufficient cash to make a purchase. However, before you pick a buyer, first do some background check on them.
Provide Accurate Information when Getting a Quote
After identifying a suitable note buyer, for you to get a quote. You must answer a few questions. The buyer can ask what type of property you have, its current value, the down payment amount, and other relevant questions. It is essential for you to be as accurate as possible. Remember, these details play a significant role in determining the amount that the buyer will offer.
Note that the amount will be a fraction of the value. This is because the buyer will have taken over all the risk associated with the property. The amount usually lies in between 70% and 90% of the value.
Close Up On The Promissory Note
After you and the buyer have completed all the necessary paperwork, both of you can close up on the promissory note. Before that’s done, it is mandatory for the buyer to do a title search. It’s more cost-effective if the note buying company agrees to cater for the fees that accompany buying of the mortgage asset.
If the results of a title search come back clean, then you can close in on the promissory note. This can also be done via UPS in case the seller isn’t situated close-by. The process comes to an end when the money is wired to the seller’s account.
The bottom line is, selling a promissory note requires some level of both real estate and legal understanding. This, however, doesn’t mean that it is difficult as most people think. Let the above act as a guide on how to sell a promissory note. Don’t forget that finding the right Note Buyer is essential and you should, therefore, research thoroughly before choosing one.