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Note Sale Steps

The process of selling a privately-held mortgage note involves a series of steps that generally take three to four weeks to complete. A chronological outline of the steps necessary to complete the sale of a note is presented below.

Step 1:
The note holder begins their initial exploration into the possibility of selling their note.
Step 2:
After speaking with potential note buyers, the note holder makes their decision about selling their note, selects the best sale option for them and chooses the company they wish to do business with.
Step 3:
The note holder and chosen investor enter into a purchase and sale agreement for the sale of the note. The agreement will contain the sale price, the number of payments sold and who will be responsible for the expenses necessary to close the transaction.
Step 4:
The note buyer will complete their due diligence necessary to complete the transaction. The due diligence process normally includes the following:
  • All pertinent documents will need to be reviewed, including the promissory note, mortgage, deed of trust or trust deed, and the settlement statement from the sale of the property.
  • A credit report on the borrower will need to be reviewed.
  • The note holder will provide a twelve month payment history on note, along with evidence when the payments were received.
  • The note holder will provide a copy of the homeowner’s insurance declaration evidencing that the collateral property is insured and the note holder is named as an additional insured on the policy.
  • A drive-by appraisal on the collateral property will be ordered and reviewed.
  • A title search will be ordered and a commitment for a lender’s policy of title insurance must be issued by the title company.
  • An estoppel letter will be sent to the borrower verifying the note terms and the current outstanding balance on the note.
  • Just prior to the closing the borrower will be phoned by the note buyer who will introduce themselves and ask a few questions about the status of the note.
Step 5:
When all of the due diligence has been completed by the note buyer the closing can be scheduled. It is a matter of good business practice for the closing to take place at an attorney’s office or the title company that completed the title search.
Step 6:
At the closing the note holder will sign the closing documents and surrender the original note, mortgage and policy of title insurance.
Step 7:
Last but not least, the note holder will receive their sale proceeds from the closing agent via wire transfer or certified check. It is also important for the note seller to request a full set of copies from the closing agent.

These are the typical steps necessary to complete the sale of a mortgage note. Every note and mortgage is unique and every note sale transaction will be unique as well.