How do I sell my note, what does selling my note involve?
Can I check my borrower's credit report?
Do I really need a note broker? I get all
these letters in the mail who can I trust?
Can I charge a late fee if my borrower is late?
How much?
Is there any reasonably priced note management
software available on the market?
How long does it take to get cash for my note?
Why should I get my note appraised?
What do I do if my borrower is late or doesn't pay?
Is now really the best time to sell my note?
These
questions and answers are also included as part of our Note Owners
Survival Pack. You can download the entire pack from our Education
section.
How do I sell my note, what does selling
my note involve?
The first step in selling any note is to determine if it is saleable.
Some notes may not have enough seasoning or enough equity. Determining
this is a simple process whereby a note holder submits their note
information for a quote. Certified Realty Services then takes the
note information, reviews it and works with a number of investors
to determine saleability and get the best price for the note. The
quote process is fast and can take as little as a few hours up to
a maximum of 48 hours. Getting a quote incurs absolutely no obligation
on the note holder's behalf and is the only way, aside from getting
an appraisal, to determine the market value of the note.
Once you have begun the process to sell your note, you will be asked
to provide us with documentation. If you are missing documentation,
Certified Realty Services can work with you to overcome these obstacles.
Our funding sources will review the documentation, an analysis will
be done, and there will be a closing at a title company where a check
is released to you, the note holder, similar to a traditional real
estate transaction. You do not need to attend this closing and many
note holders choose not to, although you are welcome to if you wish.
When you are preparing to sell your note be mindful of what your needs
are and consider the following questions: How long will it take to
close? How much if anything will it cost me to close? How easy is
the company to work with who is buying/brokering your note?
Can I check my borrower's credit
report?
Yes, you should and if you use a Freddy Mac loan application form
(see The 10 Documents that you must have to effectively manage your
note) it is a requirement to complete the form. Credit score is critical
in determining the amount of risk involved in a loan (a process in
the industry known as "underwriting") and how much of a
down payment and what the interest rate should be on the loan.
The Fair Credit Reporting Act will apply to you if you are using
it to approve your borrower for a mortgage. The FCRA requires you
to disclose in writing to your borrower that you may pull a report
and further you must disclose the details of the investigation. The
Federal Trade Commission publishes a "Notice to Users of Credit
Reports" which is the Appendix to part to the Prescribed Notice
of User Responsibilities. You can get more information at the FTC
website (see your note holders link page). We have also included for
you a copy of the Notice in our Documents section.
Do I really need a note broker? I get all these letters in the mail who can I trust? The reason you get so many letters from note brokers is because the industry is fragmented, i.e. there is no single point of contact for note buyers to find note holders. As a result, many individuals take on the task of finding note holders for the investment community. More than 90% of all note brokers are individuals that are working from their home or small office. These individuals get your name and address from the county courthouse where your note was recorded and direct mail you.
Because most note brokers are individuals there is a hugely varying level of knowledge and expertise a note seller will encounter. Some have never worked in real estate and are unfamiliar with the documents and underlying industry, others may have been real estate professionals at some point, while a few brokers will work in a company as part of a team that has experience, a vast amount of resources and the internal processes to make the sale as smooth as possible. The most important thing a note broker can do for you is, listen to your needs and work their connections with investors to get you the best deal in the quickest amount of time.
Certified Realty Services has decades of real estate experience and
proven management processes. We are also able to get very competitive
prices for note sellers because we work with very large institutional
investors who can pay more for notes because, unlike smaller investor
pools, they are extremely diversified and incur a smaller amount of
risk with every note that they purchase. For example, if a portfolio
has 5 equally valued notes in it and one of them defaults, the portfolio
incurs a 20% drop in revenue. If however the portfolio has 100 notes
in it and one defaults, the effect is much smaller. As a result, investors
with larger portfolios can pay more for notes because their overall
risk is lower. The effect to the note holder is dramatic, often meaning
the difference of thousands of dollars, sometimes variances of well
over 10 %. In order to have access to the most competitive funds,
Certified Realty Services continually researches and maintains relationships
with high caliber, motivated, well diversified buyers. Some investors
will also require the note seller to come up with money to pay for
such things as title work, appraisals etc. Certified Realty Services
knows which investors require the seller to pay for these and how
to calculate their effect on the overall price of the note and how
to help you avoid these out of pocket expenses if it is in your best
interest.
Can I charge a late fee if my borrower is late paying me, how much?
Yes you can. You should check with the state usury laws to determine how much you can legally charge. It must be reasonable and there is little evidence that supports creative late payment fees. If the threat of possible foreclosure is not enough to keep your tenant paying on-time, a higher late payment charge will most likely have little effect. What is important however is to handle delinquencies in an even, consistent and timely manner. Research shows that 36% of all borrowers that are 60 days late on a note will continue to be late and about 20% of all borrowers who are 60 days late will go into foreclosure. The key is: don't let your borrower get behind! Handle delinquencies immediately.
Is there any reasonably priced note management software available on the market?
Try: www.notesmith.com
How long does it take to get cash for my note?
It can be done as quickly as 30 days. This process can be lengthened if, for example, document collection isn't timely. The longer it takes to close the higher the cost of the transaction is to everyone involved so it is in everyone's interest to get to the closing table as quickly as possible.
Why should I get my note appraised?
Any time you need a documented objective valuation that is beyond reproach you will need an appraisal completed by an industry professional: Divorce Settlements, Partnership Dissolutions, Estate planning, Tax planning, Sale of assets. See our appraisal web page for more information on how Certified Realty Services can help with this.
What do I do if my borrower is late or doesn't pay?
Act immediately. As soon as the grace period has expired you must contact your borrower. Use an industry standard timeline, see the 15 mistakes a note holder can't afford to make page.
Is now really the best time to sell my note?
This is a decision answered best based on individual need. It is true that interest rates are at an all time low so investors find notes that were financed under better terms more attractive and hence will pay more for the notes. If you are going to keep your note it is in your best interest to manage/service it to the best of your abilities. This means that you must educate yourself. Download our survival kit, read the 15 mistakes that most note holders make, keep tabs on critical dates such as insurance renewals and tax payments and maintain strict processes for dealing with all contract breaches including late payments.
The great majority of note holders never wanted the note to begin with and when realizing the potential risks involved prefer to sell. There are several good questions to ask yourself to determine if holding the note is a good idea, or if selling it would be better for you.
Do I have any debt that I am paying interest on?
Is the interest on that debt higher than the interest I am collecting on my note?
What am I doing with the monthly income from my note? Is it just being spent or do I have the discipline to funnel this money into savings, investment in my future, planned vacation account etc.?
Do I understand the risks involved in holding a note?
Would I be affected if there were a breach in payments?
What is the duration of my note and am I going to need cash before the end of the contract?
Do you have a question that you would like to ask the professionals at Certified Realty Services? Email us at: ccrane@crsusa.org
