A comprehensive guide to understanding the dynamics and process of selling notes.
Note selling is the process of transferring ownership of a debt instrument — typically a mortgage note or promissory note — from the original holder to a new buyer in exchange for a cash payment. The industry has grown significantly as more note holders recognize the benefits of converting future payment streams into immediate capital.
The selling price of a note is determined by multiple factors including the remaining balance, interest rate, payment history, property value, borrower credit profile, and current market conditions. Notes with strong payment histories, competitive interest rates, and solid collateral typically command higher prices — often 85-95% of the remaining unpaid balance.
The note selling process typically follows these steps: First, gather your documentation including the original note, deed of trust, payment records, and property information. Next, request quotes from multiple note buyers to compare offers. Once you accept an offer, the buyer conducts due diligence — verifying documents, ordering a title search, and potentially appraising the property. Finally, closing occurs through a title company or attorney, with funds typically disbursed within 30-45 days of acceptance.
Before selling, consider the tax implications of your sale. The difference between your basis in the note and the sale price may be subject to capital gains tax. Consult with a tax professional to understand how the sale will impact your overall tax situation. Also consider whether a full or partial sale better serves your financial goals — sometimes retaining a portion of the payment stream while accessing immediate capital is the optimal strategy.