Managing Your Mortgage Note

In my last article on seller-held mortgage notes I talked about how seller-financed mortgages can make it easier for you to sell real estate. To recap: They allow you to attract buyers who have trouble finding mortgages in an overly cautious real estate market, but who clearly have the means to pay. Examples include successful business owners and people with secure incomes but limited credit histories.

The main drawback of a seller-held mortgage is that ultimate responsibility falls squarely on your shoulders. You need to take the loan seriously enough to collect payments and avoid misunderstandings. A surprising number of missed payments and other problems are actually the result of poor communications between the seller and borrower. The borrower doesn’t understand payment conditions, makes a few mistakes and then, by the time he does realize something’s wrong, he’s afraid of the possible penalties. As the note seller, it’s your responsibility to establish clear arrangements with the borrower.

Not every seller has a head for this and even if they do, they should take some specific steps to make payments and paperwork a straightforward process. Do the following:

Get a Lawyer: Your paperwork should be created by, explained by and overseen by a real estate lawyer. It’s common sense, but many real estate arrangements fall through because the seller doesn’t want to pay legal fees. A lawyer can also explain what will happen in case of missed payments and other problems.

Know Your Borrower: Current mortgage market woes are largely the result of borrowers who had nothing to lose by lying working with loan agents who had nothing to gain by learning the truth. You don’t want the former and you are not the latter. While you’re free to entertain unconventional borrowers, you must get accurate information about their finances. Your lawyer can help you with the necessary paperwork.

Know Your Property: Exercise diligence; learn everything about the real estate. Even if you’ve lived on the property for decades you might not know about issues that may come to light after the sale. Get the property inspected by an expert. This protects you as much as your borrower. The last thing you want is for a sinkhole or a hidden flaw in a house’s construction to wreck the deal. If a problem arises you’ll have to adjust the asking price but in all likelihood you’ll still find a buyer.

Take Personal Financial Precautions: Make sure you have a financial fallback position in case of a missed payment. Even low-risk borrowers can miss a payment because of an emergency or a simple mistake. Payments will be a significant source of income, but you should still be able to budget for several months without them.

In an Emergency, Sell Your Note: If managing your note is simply too complicated, don’t stubbornly hang onto it. Sell it. Minor problems can be solved, but if you go for an extended period of time without resolving serious issues, your desire to get full value out of the note will be outweighed by sheer aggravation and in all likelihood, hidden fees. We can buy your mortgage note. Contact us for a free online note buying quote.