Notebuyers prefer Contract Deed and Trust?

[Maria More]

I have a Contract for Deed that I am looking to sell to a notebuyer.  However the owner I am helping would like to be cleared and out from under the property completely.  I have not sold any notes before and still getting familiar with specifics.  After some research it seems that the notebuyers would possibly prefer a contract Deed of Trust.  The note is new and could be easily converted.  Any help is appreciated in the best strategy of the original contract for the best result of a notebuyer.

[Don Konipol]

A contract for deed is not a note, it is an installment contract.  In a contract for deed legal title has not passed to the buyer, and hence the buyer has no security to pledge to collateralize a note, which is done either through a mortgage or deed of trust.

In the past some note buyers would also purchase contract for deeds.  On residential property this has become rarer as many states have introduced restrictions and limitations on contracts for deed as well as instituted harsh penalties for violations.  On a federal level the Consumer Finance Protection Bureau has implemented significant rules eliminating any previous advantage contract for deeds held over mortgage notes rendering contract for deeds " red headed step children" in the real estate debt business.

I am not sure what you mean when you say the note can be easily converted?  A contract for deed can be modified, and a promissory note and mortgage ( or deed of trust) substituted.  This would of course require the consent and willingness of all parties involved in the contract.  There are serious differences between contracts for deeds and notes, and each party should consult their respective legal advisors.

Many different characteristics will determine the price and saleability of these legal instruments.  The term of the note, the interest rate, the collateral, the loan size in relation to collateral value, the down payment made by the borrower, the seasoning of the note, the LEGAL language in the note, the state the property is located in, the state the parties reside in, the credit score and worthiness of the borrower, the age of the borrower, if the property is owner occupied or not, the condition of the property, the real estate market where the property is located, the general level of interest rates, the general level of inflation, if the note is compliant with both the Dodd Frank Act and the regulations of the CFPB, if the servicing of the note has been compliant, etc.

The note will only sell for what someone is willing to pay. If the note is a high LTV, say 90%, and/or the borrower put little or nothing down, has a very low credit score, property is in a very rough area, or note violates legal requirements, then the note is what is known as a "junk" note. This is actually worse than a non performing note, that is otherwise solid. Junk notes will typically sell for 25 to 40 cents on the dollar. Good notes with an above market rate of interest can sell for up to 90% of face value.