Selling a Promissary Note

3 Replies

Greetings, I am an investor and have a question.  I have a house that I closed on about a year ago and the buyer and I did a promissory note for the loan.  He made two payments and has stop paying.  Is a note like this worth selling at a discounted price or should I pursue a foreclosure.  Not real familiar with both options, so I am kind of seeking out information right now.

Welcome to BP!

Yes, there is generally value, before trying to sell the note, where you'll take a hit on a discount, get with an attorney about foreclosure, if the note was equity financed, then you can take the property back and sell it getting the amount owed you plus costs. An installment sale you get the house back and you can keep whatever you get from a future sale, unlike a cash funded mortgages dealing with redemption issues.

Several, actually tons of threads about selling/buying notes here, just start reading. I suspect, while you can't advertise your note here, some may come swooping in to inquire...LOL

Have you tried to reinstate the loan? That's what most buyers will attempt to do.

Suggest you first speak to an attorney and yes, one option is to try to sell the note, it may not be your best option. Good luck :)

As Bill said, yes there is value and as you said, you would have to sell at a discount. But again to followup on @Bill G.'s post, have you contacted the borrower? Are they in any way looking to work something out with you or are they trying to avoid you? 

If you can get the borrower to start making payments again, even if it means restructuring the terms, the value of that note will quickly increase. You can still sell it if you don't want to continue being bothered with collecting payments and worrying about defaults. Selling it when it's performing will (not surprisingly) mean that you can sell it for a smaller discount than if you were to sell it today as-is.

As far as foreclosure, you might not need to foreclose as much as start the process of foreclosure to convince your borrower that you're serious about him making payments. Sometimes even having an attorney send a letter demanding payment can get their attention. But again, no need to even go that far if you can get the borrower to work with you on your own.

This is all good advice. I would add, it may be worthwhile to ask the other party if he would simply return the property to you. It could even be worth "Cash for Keys". Foreclosure is not cheap.