Finding Real Estate Notes Holders
Note Buyers- Selling Your real estate Using Owner Financing and Then Selling Note at Closing
Last week a veteran real estate professional asked me how to purchase notes at closing without being considered a lender and actually funding the deal.
The term “simultaneous closing” is really a misnomer when referring to a seller selling his property using owner financing, then immediately selling the note. Let’s first clarify that knowledgeable Note Buyers do not fund real estate purchases for several reasons. Two of the most important reasons are:
1. Note Buyers do not want to be classified as lenders and be subject to SEC and Banking regulations and requirements.
2. The Note Buyer does not want to be subject to usury laws that govern lenders.
To make sure we do not fall into any of these categories, we make sure first there is a closing on the purchase of the property. This means the warranty deed is signed by the seller, the note and deed of trust are signed by the buyer, hazard insurance is issued making the property seller a loss payee, and mortgagee insurance is issued in the property seller’s name.
When the purchase and closing are completed, the Note Buyer will then purchase the note. In a nutshell, this means the property seller, which is now the legal note holder, will endorse the note and assign the deed of trust to the Note Buyer. The Note Buyer will then inform the insurance company to be added to the hazard insurance as the mortgagee loss payee. The mortgagee insurance will also pass to the Note Buyer.
There is often confusion at title companies, even with an experienced closer, when note “simultaneous closings” are in the closing phase.
The confusion comes when there are underlying liens on the property. >From a title company’s point of view, they are not going to insure title, not to mention issue a mortgagee insurance policy, when the underlying lien has not been paid. What is the solution?
Once you know the process of what is really happening, the closing is really quite simple. The solution is to write the contract to where the seller is selling the property and wrapping the underlying note. The title company closer can then close the sale and transfer the property on the wrap. This means the warranty deed has been signed, as well as the note and deed of trust has been signed. The Note Buyer will then purchase the wrap. When purchasing the wrap, the underlying lien will be paid off, and the seller will receive the balance.
For illustrative purposes, let’s assume a house sells for $100,000 with a $50,000 first lien. The purchase contract states that the owner will finance the $100,000 purchase price, and wrap the $50,000 underlying note. Let’s say the Note Buyer will purchase the $100,000 note for $80,000.
At closing, the buyer signs a note and deed of trust. The seller signs over the deed. The sale of the property is complete. Now the Note Buyer will purchase the $100,000 note for $80,000. With the proceeds, the $50,000 underlying note is paid, and the seller receives the $30,000 balance.
Now everybody is a happy camper. The seller got his equity, the buyer got a house, the Note Buyer got a quality note, and most importantly, the title company can justify transferring the property without using the Note Buyer’s money to do it.
Bear in mind, there are some who believe this transaction is really just a loan in disguise, and will not purchase the note until a month later. So as usual, be sure to check with competent legal and tax advisors.
If you have questions about structuring notes, or know of someone who wants
to sell a note contact me at www.hpnotes.com
About the Author
Buyer of real estate notes since 1980. Tom graduate from A&M University in Commerce Texas, with a degree in economics and finance. He is sought out to speak at real estate investment clubs and realtor offices to speak and advise on the owner financing/note process for selling property.
foreclosure advice….I have to walk away ….HELP?
I purchased a mobile home 8 yrs ago ()in a park with no land as viable asset) and I do own another home. I have exhausted all avenues for getting it sold, refinanced, (Note holder is Vanderbilt and they REFUSE to help), renting, short sale, etc. I am at the point of walking away cash for keys sort of thing. This one is a rental and I can’t even rent it to pay the note on it. The economy is extremely tight here for real estate rental market. I know I am going to take a hit on my credit but since I pay cash for most everything I buy I am not too worried. Do I need a lawyer to “walk away” or can I send the keys in with a disclaimer note and tell them I am done? I bought it from them out of a foreclosure and found out they did the same thing to previous two owners.
You shouldn’t just mail them keys & walk away – you should ask about a voluntary foreclosure. You probably want to get this out of your name ASAP – it will minimize your liability exposure.
Of course, you’ll take a hit on your credit, if they sell it for less than your mortgage balance. Then they’ll come after you for the difference. If you think you’re not upside down on it, then just keep lowering the price, until SOMEONE buys it. It will be cheaper for you in the long run.
How to Buy and Sell Real Estate Notes On Cash For Keys
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