In a mortgage note, trust deeds and contracts for deeds, an individual or entity receives payments on a mortgage instead of a bank. But sometimes that individual or entity would prefer a lump sum to a payment stream. Because of that need to liquidate these types of assets, a secondary market of mortgage note buyers emerged to give the note holder the option of cashing out.
History of the Mortgage Industry
The start of the private mortgage note industry — and thus the secondary industry of mortgage note buyers — begins with the birth of the modern American mortgage.
The mortgage as we know it, with the standard 20 percent down and payments spanning 15 to 30 years, has only been around since the 1930s. Before then, people would put 50 percent down on a property and be required to pay the loan back in five years. Then President Franklin Roosevelt passed legislation in the 1930s nicknamed the New Deal, which, among other things, established the Federal Housing Administration. That new agency, the FHA, created what’s now considered the industry standard 30-year mortgage.
With these FHA loans, though, came regulations. To qualify for FHA loans, the properties had to meet certain standards, and the borrower had to have certain credentials. A longer time to pay the loan back meant more risk, and the collateral on the loan, the property, needed to be in good enough condition that the lender could recoup its money if the borrower defaulted.
Home Buyers Turn to Private Mortgage Notes
Private mortgage notes filled the void left behind by the FHA. Regulations left out a significant percentage of borrowers who didn’t have the credit history necessary to qualify for loans — and it also left out properties that were not in good enough condition to qualify for FHA loans.
Even today, some homeowners have properties they can’t afford to improve enough to meet FHA standards, so they offer homebuyers “seller-backed financing” through a private mortgage. This lets the previous homeowner get rid of an unsellable property, all with the benefit of a quicker sale process for the homebuyer. The new homeowner simply gives the down payment and payments directly to the buyer, who now isn’t stuck with an unsellable property.
Private mortgages also became popular to keep resources in a family or community. If one relative has a piece of property, he or she can sell it to a family member. That family member pays the private mortgage to the relative, who gets the benefit of the interest on the loan, instead of that money going to a bank.
The same process worked for commercial properties. If a farmer wanted to sell an adjacent field to his neighbor, he could with a trust deed, all while earning a moderate interest.
As time went on, private mortgages began looking more and more like FHA loans, with longer terms and 20 percent down. But instead of being from banks, they were from private individuals or entities.
Origination of the Secondary Market
When note and deed owners wanted to liquidate their assets, they started turning to mortgage note buyers. Note owners could exchange their payment stream for a lump sum on the secondary market.
At first, only individual investors purchased mortgage notes. But as private mortgages increased, so did the number of investors. With real estate having a reputation as a safe investment, and mortgage notes and deeds in trust being collateralized by real estate, more and more investors realized it was a good business opportunity. So as time went on, companies formed with a focus solely on buying mortgage notes.
Just as people turned to private mortgages for different reasons, they turned to mortgage note buyers for several reasons. Those who utilized seller-backed financing no longer had to bear the risk of the loan. Plus, those who wanted to give a relative or community member a leg up toward ownership could feel good about what they did — but still get the cash they needed.
Mortgage note buyers give freedom to note owners without affecting the payer. From the property owner’s perspective, very little changes: Loan terms remain exactly the same. The property owner simply sends the check to a different location.
Working with the Best Mortgage Note Buyer
Selling a mortgage note is a serious financial matter that a note owner should enter into with a reputable buying company. Notes come in several varieties, so selecting someone with diverse experience is a must.
Signs of a Good Mortgage Note Buying Company:
- Offers a quote without requiring you to sign any paperwork first
- Has experience working with notes and deeds of trust in multiple locations
- Responsive customer service who makes you feel comfortable
It’s true, interest rate changes can affect the value of your mortgage notes — but that’s along with several other factors. If a note buyer tries to pressure you into a deal you’re not comfortable with, it’s probably a sign that you should get a quote elsewhere.
Why Choose Us as Your Mortgage Note Buyer
At MortgageNote.org, we connect you to an experienced professional, with decades of experience purchasing mortgage notes, business notes and deeds of trust. Our partner takes a “look-at-everything approach” and has offered quotes to unique notes of all shapes and sizes. You also get a dedicated sales representative for the entire process.
We understand that most people sell their note to get access to capital. We also believe you shouldn’t have to work with a company you don’t like just to get a good price. Because of that, we’re willing to beat any written offer from a competitor.
The entire deal is handled with professionalism and discretion. Your property owners will not be disturbed or communicated with until the sale is final, at which point the only thing that changes is where to send the check. They handle the sale over telephone, fax and email to get the sale closed efficiently to get you your money fast.