Have you imagined what it would be like to instead take your monthly mortgage payment stream and convert it into a large lump sum? Under the Golden State’s sun, however, holding a private mortgage note — typically created via seller-financing a property — can end up feeling like your money is locked down for years on end. Life, though, doesn’t necessarily adhere to a 30-year amortization schedule. 

Whether you’re in the market for a new investment opportunity, looking for cash to make a big purchase, or simply want to reduce your long-term risk and hassle, California mortgage note buyers can provide an attractive solution. 

Understanding Your Mortgage Note as an Asset

A mortgage note, also known as a promissory note, is a legal document that also has a promise to repay the loan, and is secured by real property that is part of the mortgage. In California, such notes are valuable paper because they represent fixed future income with some security. When you decide to sell this asset, finding a reliable California mortgage note buyer is the crucial first step to receiving a fast, fair, lump-sum cash offer.

When you sell it, you are offloading (or more formally, transferring) that income stream to a buyer in exchange for an immediate lump sum payment of cash — one that is less than the remaining nominal principal amount owed. This discount factors in the time value of money, the return an investor is seeking, and the risk associated with a note.

Key Factors Influencing Your Note’s Value

How Much Can I Sell My Note for? The amount a mortgage note buyer will offer you is based on the risk assessment of 7 factors. The single most important factor is the Borrower’s Payment History; years of consistently making timely payments (what we call “seasoning”) bestow a value on a loan that isn’t seen any other way. 

Other important considerations include the Loan-to-Value (LTV) Ratio, which is the remaining principal balance in relation to the property’s current market value – a lower LTV means less risk. The Interest Rate and Term of the note are important as well. Similarly, if there’s a higher interest rate and less time remaining on the term, you’ll usually be looking at a smaller discount and a bigger return to you.

Navigating the Note Sale Process

Selling a mortgage note, especially in an attractive market like California, is simple. You start by collecting all of the loan documents you have, including your original promissory note, Deed of Trust, and a full payment history. 

Then you will contact some reputable note buyers or brokers in order to obtain a quotation. Make sure to shop around so you know you’re getting a fair offer. Once you accept an offer, the buyer starts its own due diligence process (often with a drive-by appraisal to determine whether it believes your property is worth what you want for it) plus double-checks that the borrower has made all its payments.

Preparing Your Documentation for a Smooth Sale

Meticulous organization of your paperwork is essential to a swift and favorable note sale. A buyer’s due diligence is simpler and faster when documents are complete and easy to verify, which can translate to a better offer and quicker closing.

• Original Promissory Note and Deed of Trust/Mortgage: These are the foundational legal instruments.
• Payment History: A complete, well-documented ledger showing every payment date and amount received from the borrower.
• Title Insurance Policy: Proof that the title is clear and that the lien securing your note is valid.
• Property Appraisal/Valuation: An original appraisal from the time the note was created, or a recent valuation.
• Borrower’s Financial Information: Documentation of the borrower’s credit score at origination, if available.

FAQ’s

Does the borrower’s payment amount change after I sell the note?

No, the terms of the original mortgage note, including the monthly payment amount, interest rate, and schedule, remain the same for the borrower. They simply mail their payments to the new note owner/servicer.

How long does the entire note sale process take in California?

The process typically takes between 15 and 45 days from the time you request a quote to when you receive your cash. The speed is often dependent on how quickly you can provide all the necessary, accurate documentation.

Conclusion

Selling a mortgage note in California is a big decision and it’s important to do your research, so you’re aware of all options available to you. Selling your note may seem like the best way to access the cash you need right away. 

California’s strong real estate market makes its mortgage notes more attractive than most for investors, so expect competitive bids. By ensuring your paperwork is in order, knowing what kind of LTV and payment history the business has are crucial drivers of value, and looking at full AND partial sale avenues will help the process go smoother and ensure you receive as large a pay out as possible.