The Sweet Spot in Mortgage Notes

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Yesterday, I was contacted by a person wanting to sell a real estate note with a face value of $9700.  That’s right, nine-thousand seven-hundred dollars.  The sales price was also $9700, as there was no down payment and no seasoning (payment history).  This was supposedly for a house in the Midwest, though at that price, I have to think that something is terribly wrong with the property.

The note holder went on and on about what a great deal this would be for any mortgage note buyer, and the huge rate of return.  In this guy’s mind, he may very well think that this is a strong note.  However, to any note buyer, this is a horrible note, and I doubt that anyone would ever buy it.

Most note buyers have a required minimum balance on any note that they are considering.  Typically, this minimum is around $30,000, though some investors start at $50,000.  Similarly, most note buyers have a maximum balance requirement, above which they will not go.  For small note investors, this could be only $100,000, while larger companies may consider notes up to $1 million or higher.

The Midwest note above had serious deficiencies beyond just the low note balance.  There was zero down payment, no monthly payments had been received, and the payer’s credit was probably rotten.  If a mortgage buyer did purchase a note like this and it went into default, the buyer would almost certainly lose money from just foreclosure and rehab expenses alone.

If you are considering carrying a note with a balance of less than $30,000 or more than $1 million, be aware that you will have difficulty finding a buyer for the note, even if everything else about the note is wonderful.  The same applies if you are holding a junior lien or if the property is located outside of the U.S. (though there are note buyers in Canada).

Before you agree to carry a note (offer owner financing), talk with an experienced note buyer first.  Even if you don’t expect to ever sell the note, a knowledgeable note buyer can give you tips to protect yourself and to make the note more marketable in case you later decide to sell it.

About Author

Alan Noblitt

Alan Noblitt is a nationwide note buyer and a licensed real estate broker in California. His business, Seascape Capital Inc., started in 2002.


  1. You mentioned that there are mortgage note buyers in Canada. Do you know of any that operate in BC?
    I have second mortgage notes that were created 2 years ago and mature in 3 years. The catch is there are no monthly payments or interest payable, only a future value totaling about $60,000 at term in December 2014.
    any comments or suggestion welcomed.

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