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Seller
Financed Mortgages and Business Notes
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· Factoring
to Grow Your Business * * * * * * Sell Mortgages & Notes * * * |
How do our various transactions work?
What happens when you sell a mortgage?
We collect information from you. The first step is that we need some basic
information about the mortgage. While it may be possible for you to provide
it by phone or e-mail, it is usually most efficient and accurate for us to
get it from the actual documents. Therefore, we ask you to provide us a copy
of the mortgage (or deed of trust), the note, and the settlement statement.
We also need information to enable us to evaluate the likelihood that the
payer will make payments on time. For that we need the name(s), social
security number(s), and address(es) of the payer(s) so we can get a credit
report, and any documentation you may have that shows when payments were
actually made. We are very careful about sharing the credit information, and
we want to minimize how many people check the credit. We make an offer and you accept it. We'll tell you what you will receive and whether you
will have any costs. We'll sign a mortgage purchase agreement that lays out
the rules, and we'll explain anything you want to ask. We have enough
experience so we'll usually know the answer, but if we have to ask someone
else, we'll do so. We'll tell you what additional documents we need before we
close. "Due diligence" is performed. That's a legal term that means we or the funding
source will review all the documents to make sure everything is in order. For
example, we will have to be sure that you sold the property with clear title. The deal is closed. You will sign documents turning over your
ownership of the mortgage to KG Funding or the funding source. Depending on
what state you are in and where the property is, this might happen in a
lawyer's office, a title company, via overnight mail, etc. If the closing is
at a title company or lawyer's office, you probably will get your money that
day. If the closing is by overnight delivery, money will be sent back
overnight or wired to your account when the documents get to the funding
source. Mortgage The document that says you owe money for the
property and is recorded at your county clerk's office. It may also be called
a deed of trust or trust deed. Some states have land contracts, which are a
little different, but they can be sold. Promissory Note The note specifies the terms under which the
mortgage will be paid. It includes the interest rate, the amount of payments
and when they are due, etc. It is not recorded at the county clerk's office. Settlement statement Also called HUD-1 because it often uses a
standardized form by that name, it lists all the expenses, legal fees,
payments, etc., involved in the sale of the property. It is normally prepared
by the closing agent (attorney, title company) at the closing of the sale. Is it possible to
sell part of a mortgage?
Suppose the balance on the mortgage you
hold is $100,000, and you decide you need $20,000 for a car, for a vacation
or to help pay your grandchildren's college tuition. Why sell the whole
thing? You can sell enough of the mortgage to get the $20,000. An investor
will pay you the $20,000 in exchange for part of the payment stream. That's
called a "partial" sale. You can structure what you give up in
several ways. You could give up the next maybe three years, maybe five years,
of payments. Then you get the rest. Or, you can keep part of your monthly
income by selling part of each payment for a longer period of time. If
there's still a long term on the mortgage and you need the current income,
sometimes it is possible to sell the back end, say the last 5-10 years of the
remaining 15. Every note is different, so let's discuss your needs. Can a mortgage be
created just to sell it?
Yes! An important use of this technique is in a divorce or other situation where one partner needs to buy
out the other. Assuming there is
enough equity to make it work, create a mortgage in which the person keeping
the property is mortgagee, and the other party is mortgagor. Then sell that mortgage, so the parties
don’t have to deal with each other..
You should contact KG Funding prior to finalizing the
mortgage to be sure that the new mortgage is salable. If it’s a second mortgage, read that
paragraph below.
Is it possible to
sell part of a mortgage?
Suppose the balance on the mortgage you
hold is $100,000, and you decide you need $20,000 for a car, for a vacation
or to help pay your grandchildren's college tuition. Why sell the whole
thing? You can sell enough of the mortgage to get the $20,000. An investor
will pay you the $20,000 in exchange for part of the payment stream. That's
called a "partial" sale. You can structure what you give up in
several ways. You could give up the next maybe three years, maybe five years,
of payments. Then you get the rest. Or, you can keep part of your monthly
income by selling part of each payment for a longer period of time. If there's
still a long term on the mortgage and you need the current income, sometimes
it is possible to sell the back end, say the last 5-10 years of the remaining
15. Every note is different, so let's discuss your needs. Can you buy a second mortgage?
Second mortgages are tough to buy. Most second mortgages are much smaller than
the first mortgage in front of it.
That makes them very risky.
Many of them have little or no down payment. That increases the risk. When the down payment is at least 10%, it
may be possible to sell a small second but at a large discount. If the second is close to the size of the
first, the possibilities improve. A good
payment history is important. How do business notes work?
Business notes are similar to mortgages,
except that there is not normally as solid collateral. In most cases business
note buyers will want the new owner to demonstrate an ability to make a
profit, and financial data from before and after the sale is important. Also,
because of the greater risk, business note buyers are likely to require
larger down payments (at least 30%) and larger discounts and to prefer buying
a partial (not all of the payments). UCC filings and personal guarantees (for
corporate owners) are essential. Seasoning is helpful. Detailed
financial documents about the business, including tax returns, are normally
required. |
