Q: What is a Real Estate Receivable (e.g., Note)?
A: A real estate receivable is a document (or documents) secured by real estate that obligates one individual or company to make payment(s) to another individual or company. These receivables are created when a piece of real estate, such as a house, is sold. The purchaser gives the seller a cash down payment and the balance is paid to the seller in periodic, usually monthly, installments. Therefore, payments are made from the property purchaser (payor) to the property seller (payee). The property seller, therefore, provides the financing to the purchaser the same way a bank normally does. This is called seller-financing or owner-financing. The legal documents that accomplish these tasks generally take one of three different forms: Promissory Note & Deed of Trust, Promissory Note & Mortgage, or Real Estate Contract. The generic term for each of these is a Real Estate Receivable. For convenience, at Cascade Funding, Inc., we refer to all Real Estate Receivables as "Notes." The payments a property seller will receive from these Notes are an asset and, like any other asset, can be sold for a lump sum of cash.
Q: Why would I want to sell my future payments?
A: There are perhaps as many reasons people sell their Notes as there are ways to spend money. We always ask Note Sellers why they wish to sell their Note. The most frequent responses we get are: 1. To eliminate the risk and responsibility in holding the Note; 2. To achieve liquidity; 3. To take advantage of other investment opportunities; 4. To pay off debts; and, 5. To make specific purchases. Often people never wanted to carry back a Note in the first place but had to in order to sell their property. Other situations, such as Notes provided as equity settlements in divorce cases, inherited Notes, to name just two, often result in the current Note Holder owning a Note they never wanted. Often these people are happy to receive the current value of their Note in cash and move on with their lives.
Q: How much cash can I get today for my Note?
A: The amount of cash a Note can be sold for depends on three general components: #1) The current economic environment. #2) The terms of the Note (down payment, payment amount, interest rate, length of payback, payor's credit rating / payment history, property condition, etc.). #3) Degree of risk - the probability that the note holder will lose his/her money.
The current economic environment generally determines the yield or rate of return an investor requires when purchasing a Note. The better the economy, the lower the cost of funds for the investor, and, therefore, the lower the yield we require on the investment. This all means more cash to the Note Seller. A good economic environment pays more for the same kinds of Notes than in a bad economic enviroment.
We must examine the terms of the Note (#2 above) and the degree of risk (#3 above) individually for each note offered for our purchase. Many people would like us to quote a fixed percentage of the remaining balance on their Note. This is not possible due to the near infinite variability these two items possess. However, in most cases, we can evaluate all three of the above components and make a cash offer for your Note while still on the initial telephone conversation.
Q: Why is there a discount?
A: Whenever future payments are sold for cash today the current balance is always sold at a discount. There are two reasons for this: 1. The amount of the loan is paid back to the payee over time--and time erodes the value of money; and, 2. The stated interest rate on seller-financed Notes is not high enough to induce investors to purchase these loans. Therefore, to increase the yield investors get on the investment, you must sell the cash flow at a rate of return greater than the Note rate. You do that by selling the Note at a discount from its current principal balance.
Q: Can I sell just part of my Note if I don't need all of my cash now?
A: Yes, in fact this is very common. It is referred to as a "partial purchase" and involves selling only a certain number of the remaining payments on your Note. At MORTGAGE BUYERS, INC., we can purchase any number of the remaining payments in almost any manner you can think of. For example, let's say you have a Note with a balance of $80,000 payable in 240 monthly installments. If you needed just $20,000 now for whatever reason, we would calculate how many payments we would need to purchase to provide you with that specific amount of cash. Precisely which payments we purchase depends on your personal financial situation. Here's a few of the options we could look at for you:
We could buy (Numbers are for illustration only):
- A certain number of the beginning payments on the Note. For example, we might purchase the first 60 payments and you would receive the final 180 payments.
- A certain number of the final payments on the Note. For example, we might purchase the final 180 payments passing through the first 60 payments to you.
- A certain percentage of each of the remaining 240 payments on the Note.For example, we might purchase 50% ofeach of the 240 payments. You also would receive 50% of each of the 240 payments.
Remember, all of the above options will provide you with the $20,000 needed today. The type of partial purchase chosen will depend entirely on your unique financial situation. In other words, you may choose the first option if you need $20,000 today and want or need to have a future monthly cash flow beginning in 5 years. You might choose the second option if you need $20,000 today and you need a monthly payment for the next 5 years until, say, your retirement benefits begin. And you might choose the last option if you need $20,000 today and also want or need the monthly 50% payment for the next 20 years.
There are many other ways we can structure the partial purchase for you. Our goal is to get you the specific amount of cash you need NOW while also addressing your financial concerns of the future. A real estate Note is a remarkable asset when you can intelligently sell your payments to an investor able to provide you with such a rich variety of possibilities.
Q: Are the terms of my mortgage note affected if I sell?
A: No, as a matter of fact the sale of your note never changes any terms of your mortgage including the interest rate and the monthly payments.
Q: What kinds of properties and mortgages will you consider buying?
A: Mortgage Buyers will consider most types of real estate properties, including residential, multi- family, certain types of commercial properties, and land only notes. The properties may be secured by first or second mortgages, contracts for deed or land contracts. Various levels of credit will also be considered.
Q: How can I begin the process of selling my note, i.e., how does it all work?
A: We will take an assignment of the security instrument (Deed of Trust or Mortgage) and receive an endorsement of the Promissory Note. These are the final steps in selling your Note however. Before we get to this point we have to do our due diligence. That is, we need to verify all aspects of the transaction. You need not be concerned with not knowing what to do since we do all of the work-- from verifying all aspects of the deal to preparing and having recorded all of the necessary documents to make the change.
Call us at 800-743-2274. It only takes a couple minutes.
Q: How long will it take before I have my money?
A: We have purchased Notes in as little as one day; and it has taken over a year to purchase others. On average, it takes two to four weeks. If the sale of your property and the creation of the Note was "typical" then you should have your money within two to four weeks.
Q: Can this be done through the mail or email?
A: Absolutely, the sale transaction of your mortgage can be completely done with ease and confidence through the mail, email, or in person.