I have successfully found a buyer for my owner financed home in El Paso, Texas. This was a great way to move the property quickly. However, I am considering selling the note as soon as we close, there is a very small gap between what I owe, and what I hold on the note. Therefor, I believe it would be in my best interest to sell the note. Where should I look to find someone to purchase this note from me?
Expect to take a pretty good discount, depending on if the loan was properly underwritten/executed, LTV, buyer's credit history, etc., especially without a 6-12 month payment history.
Bill P. I am sure its fairly obvious I am new to Notes. I just got some guidance concerning payment histories and holding for a period of time to show on time payment. I think holding for 6-12 months would be in my best interest.
there is a very small gap between what I owe, and what I hold on the note.
Are you saying you're wrapping an underlying mortgage with this new note? If so, you would need to sell the note for at least the amount you owe so you can pay off the underlying loan. Or kick in some of your own cash to make up the difference.
Reading between the lines. This sounds like a Subject To sale. A little arbitrage between what you owe and what the borrower owes implies to me the borrower is in with a minimal down payment. So essentially you are asking the new note investor to take all the risk and let you bailout. All that said, a discount here of any relevance, whether that is 10%, 20% or more means you would have to capitalize your loan payoff. I suspect that is a barrier to making this work from your angle. More than likely you need to look at keeping this and accelerating your loan pay down so you can handle the discount that will come with this loan which will not overly improve (be reduced) with the passing of a short amount time.
The 6 to 12 month advice is not correct here. In 12 months time, go look at the amortization of each loan, that is likely not enough payments of principal to really impact much. Also, pay attention to properly aligning the amortization. That is a pretty common mistake. The rate spread over the underlying loan will be diminished to just keep up with properly aligning both loans.
@Jon Holdman yes we would be setting a wrap over my underlying note.
Here are the numbers,
140k Purchase Price
128k on underlying note
Buyer is offering 14k down.
That note you're creating has no value. Maybe I'm missing a trick, but I cannot see how you can possibly sell that note. The buyer is going to be making payments on the underlying mortgage. They're going to want a discount to buy a freshly minted note. Further, this note could be wiped out by the original lender foreclosing, which they have the right to do based on your sale of the property. So you're going to have to pay someone to take it. Perhaps @Dion DePaoli sees something I don't.
Hopefully you've used a RMLO and done this new note in compliance with the plethora of regulations. Pay attention to what he's saying about aligning the terms of your new note with the underlying one. The buyer could choose to pay this off at any moment. At some point, they will. When they do that, you better get enough money from the payoff to payoff the underlying note. If you have the terms out of whack, you could come up short and have to come out of pocket to make up the difference. Not paying off the underlying note is NOT an option when the buyer pays off their note.
Is the loan you owe on seller financed as well or did you get an institutional loan?
the loan I owe on is with a traditional lender.
Well, with an institutional lender there are risks to having them call the loan due for transferring title. My opinion here, for what it is worth, is you are about to likely make a mess for yourself. If the property is really worth $140k then rescind your offer to finance and tell your buyer to find financing from somewhere else or find a new buyer.
Your loan will not fetch a price that is going to allow you to pay off your debt. It will be discounted. Would not be shocked if that discount is at least 10%. So you are short $13k to payoff your loan. So you are doing all of this to barely make $1k. Like I said, you are not making an advantageous position for yourself. Really just one big stressful headache.
Just sell the property outright and be done with it.
After reading your details, I would probably enter into a land contract (contract for deed) and accept $11K down leaving you have a $1K positive spread. ( @Dion DePaoli is correct as the 6 - 12 months seasoning won't be of any value in this case as there isn't any value in your note. ) Have the buyer make payments equal to your payment and service it that way for 3-5 years whereby he needs to get a new mortgage. The $1K spread you'll collect at the true closing when he gets a new mortgage. The reason for the spread is you don't want to go negative. That is illegal in many states. It is in Ohio, probably in Texas as well.
You might want to consider a lease option.
That is primarily how I have been marketing this, I originally did not want to carry a note. I also am much more educated on the lease option process. After speaking to everyone here, it seems as if continue to market it as a lease option is the best course of action.
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