Mortgage notes are loans created when a home is sold. Private mortgage notes are funded by a home seller rather than a bank or lending institution. They are also known as cash flow notes, seller financed notes, owner financed notes or seller carry-back notes. Mortgage notes where the seller is behind on payments may be sold at a discount. This means that the mortgage note buyer (you?) will pay a discounted rate for the loan to the current mortgage note holder and, in turn, will then receive all future payments made on the loan by the mortgagee.
Once you are the note holder, you may work with the mortgagee to amend the terms of the original agreement as you see fit to make it work for everyone involved.
Due to the number of REO’s today, most banks are outsourcing the handling of collection on delinquent mortgages to outside resources. Therefore, pinning down the mortgage holder to make an offer to purchase a mortgage notes is extremely difficult in today’s market for the average investor. Though there is still the possibility of working with smaller banks.
If you’re thinking about investing in real estate notes, ignore the late night infomercials. Study up on the subject and then get yourself hooked up with someone who is knowledgeable and has actually bought notes. And keep in mind, unless you’re bringing viable notes to that investor, you’ll need to pay him or her for their time and expertise.
I always recommend that new investors broker their first few notes before putting their own money at risk. That way, you can learn while you earn and build a good knowledge foundation.
- Watch for my next post on Investing in Tax Deeds and Liens.
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