6.  Term of the Note

Setting a term of 10 to 20 years is usually best when you think about how long to carry the note.  This is where you can be sensitive to the buyer and what he can afford each month.    Just don’t create a note with a low interest rate amortized for 30 years.  You want top establish a term where it is attractive to an investor and offers incentive for the buyer to refinance using traditional methods.  Investor usually like shorter term notes so they don’t have extend their money for 30 years.  A term between 10 an 20 years is usually right in line with what an investor will buy your note and pay top dollar for.  There is nothing wrong with creating a note that is for 12, 13, or 16 years in term.  If you can create a 10 year note with straight amortization then that would be what I would recommend. You need to make sure that it is affordable to the payor.

7.  Balloon Notes

Balloons is a good option but you need to be careful how you use it.  Don’t create a note amortized over 30 years with a three year balloon just because it sounds good and think you will get all your money in three years.  When using a balloon like that you need to make sure you have a clear exit strategy for that to work.  Some sort of event should occur in three years for that to work.  Besides a 5% interest rate like I said before is not attractive over thirty years even with a balloon.

There are some investors that like balloons and some not so much.  I have two thoughts, first for those investors that like balloons.   Amortize the note over 30 years with an interest rate of 10% and the balloon due in 7 years.  That will still provide opportunity for an exit strategy for the payor to refinance if  the payor is able to qualify using traditional methods.   Should you need to cash out of that position before then there are investors that will purchase that paper. [Read more...]

3.  Documentation Practices

This is where I see a lot of frustration and note sales take a turn for the worse.  The ORIGINAL promissory note is the GOLD in the transaction, The Texas T.  Losing that document can be a very costly mistake and akin to burning cash money.  I have been to a few closings where the note seller does not have the ORIGINAL promissory note and kills the deal altogether.  The signatures should be in blue, but if they are in black you can wet your finger and then rub on the signatures.  If they smear you have the original document, if they don’t then you have a copy.

Now aside from losing the promissory note you can save yourself a lot of pain and anguish if you practice sound record keeping practices.  Keep the original promissory note and all the documents from closing in a safe findable place.  Don’t just shove them in a drawer and forget about them.  These are the documents that will be needed to sell your note

• Deed of Trust
• Promissory Note
• Settlement Statement / HUD 1
• Buyer Credit Report
• Warranty Deed
• Property insurance (hazard)
• Title Insurance

If you have all these documents at hand this will expedite your transaction significantly, if not then it can drag on for several weeks. [Read more...]