Advice on Selling Partial or Hypothecate

[Jarrod Tucker]

I currently own a note that I am considering to sell a partial on to help me recapitalize.  This will be the first time that I would have done this.  As I have researched the different methods/approaches, I have come across 3, but I would like this group's advice and watchouts of the different approaches.

Some background information:

-Note is Performing 1st; very low LTV and ITV; 8 months pay history; on Auto Pay; 64 payments remaining

-The buyers of the partial are good friends of mine, so I want this to be a good safe transaction for them.  We have agreed on a price for 48 payments.  They have limited knowledge of notes at this point and doing this transaction to get their feet wet.  They aren't interested in servicing the note and prefer to simply get the passive income.

3 Approaches (my simplified understanding of each)

1. Sell a partial - The note and mortgage would transfer into their name (like when I purchased the whole note) for the 48 months and then transfer back to me.  I could still service the note for them to not cause any concern/confusion for the people paying on the mortgage.

2. Hypothecate - From what I understand with this approach, the "buyer" is actually loaning me money under a set of terms that would replicate the partial structure/number.  While the note would be collateral, I ultimately still control the note?

3. Place note in Trust - I would act as the trustee and the buyers would be a the beneficiary.  

If there are other options that you all can think of, I would appreciate the input.  Thanks!

[Chris Seveney]

Here is how I do it. 

I issue them a partial purchase agreement and assignment. This states the terms of the contract and assigns them a set number of payments. This document is not recorded.

I handle all of the note management and servicing for the loan. I ACH them the $ on the first of the month. I do not wait for the borrower to pay (but I could based on my agreement) as its much easier the way I do it. I like to keep things simple as possible. 

The other reason I do not assign them the note to manage is they are not typically note investors. They want some passive income but are involved in any decisions that need to be made (compliance) and go from there. 

I also have an amortization table that shows what they are owed at any point in time.

Some call this a partial, some hypothecation. Call it what you want. This would be my recommendation.