Selling a Florida mortgage note involves more than simply finding a buyer and accepting an offer. The value of the note, the documents supporting it, the payment history, the property securing it, and the terms of the proposed sale can all affect the transaction.
I’ve been purchasing private mortgage notes since 1989, and over the years I’ve seen transactions become more difficult because of issues that could have been identified earlier. I’ve also seen note holders focus on the purchase price while overlooking other considerations that can be just as important.
If you’re considering selling a mortgage note in Florida, here are seven mistakes worth avoiding—and some practical things to consider before making your decision.
For a broader explanation of the selling process and your options, visit our Florida Note Buyers page.
Mistake #1: Not Knowing Your Note’s True Market Value
A mortgage note’s value isn’t simply its unpaid balance. A buyer evaluates the future payments and the risks associated with receiving those payments.
Some of the factors that can affect a note’s value include:
- Remaining balance and number of payments
- Interest rate
- Payment history
- Property value and available equity
- Borrower’s credit and financial history
- Position of the lien
- Terms of the note, including any balloon payment
Two notes with the same remaining balance can have very different values because the underlying terms, payment history, borrower, and property may be different.
What to do instead: Before deciding whether an offer makes sense, understand the major factors affecting your note’s value. Our Mortgage Note Value Guide explains those factors in considerably more detail.
Mistake #2: Accepting the First Offer You Receive
Mortgage note offers can vary from buyer to buyer. Comparing offers can make sense, but the highest initial offer isn’t necessarily the best transaction.
Look beyond the purchase price. Ask whether there are any fees or closing costs you will be expected to pay, how long the buyer expects the transaction to take, whether the offer is subject to additional due diligence, and whether the buyer has a history of actually closing transactions.
I’ve seen situations where an attractive initial offer changed after the seller had already invested considerable time in the process. Understanding what an offer includes—and what could cause it to change—can be just as important as the number itself.
What to do instead: Compare the entire offer and the buyer’s process, not just the initial purchase price.
Mistake #3: Failing to Verify the Buyer’s Reputation
Selling a mortgage note can involve a significant financial asset, so it makes sense to know who you’re dealing with before signing an agreement.
Look at how long the buyer has been in business, whether you can identify the people behind the company, what previous sellers say about their experience, and whether the buyer clearly explains the transaction and answers your questions.
American Funding Group has been purchasing private mortgage notes since 1989. Over the years, I’ve found that sellers are usually more comfortable with the process when they understand who is buying their note, what will happen next, and who they can contact when questions arise.
What to do instead: Take a few minutes to research the buyer before committing. Our guide to choosing a mortgage note buyer in Florida explains the things I believe are worth comparing before making that decision.
Mistake #4: Overlooking Documentation Issues
Missing or inconsistent documentation doesn’t necessarily prevent a mortgage note from being sold, but it can slow down the evaluation and closing process.
Some of the documents a note buyer may need include:
- The original promissory note
- The recorded mortgage or other security instrument
- A current payment history
- The original closing or settlement statement, if available
- Any modifications or amendments to the original terms
Over the years, I’ve encountered missing documents, payment histories that didn’t match the note terms, questions about property ownership, and other issues that had to be resolved before a purchase could close. Sometimes the solution is straightforward; other times additional research or documentation is required.
Sometimes the documentation problem is more fundamental. Recently, a note holder contacted me about a transaction involving more than $400,000 and was operating under a verbal agreement without the documentation normally needed to establish and secure the obligation. Before we could even begin evaluating a possible note purchase, we recommended that he work with an attorney to get the appropriate documents in place.
What to do instead: Gather whatever documents you have, but don’t assume a missing document means your note can’t be sold. Let the buyer review what is available and identify anything else that may be needed.
Mistake #5: Assuming You Have to Sell the Entire Note
Many note holders assume that selling a mortgage note means selling all of the remaining payments. That’s one option, but it isn’t the only one.
A partial note sale allows you to sell a specified portion of the future payments for cash now while retaining an interest in payments that come later. Depending on how the transaction is structured, there are different ways a partial purchase can work, including what happens if the borrower pays the note off early.
I’ve used partial purchases when they better matched what a seller was trying to accomplish. In other situations, selling the entire note made more sense. And sometimes, after looking at the numbers and the seller’s goals, keeping the note may be worth considering.
What to do instead: Start with what you’re trying to accomplish rather than assuming you need to sell everything. Ask the buyer to explain the full-sale and partial-sale alternatives—and what each would mean in your particular situation.
You can see examples of how full and partial note purchases work on our Mortgage Note Purchase Examples page.
Mistake #6: Not Considering the Tax Implications
Selling a mortgage note can have tax consequences, and those consequences can vary depending on how the note originated, the seller’s basis in the property or note, how much principal has already been received, and how the sale is structured.
This is particularly important when the note resulted from an owner-financed property sale where the seller has been reporting income over time.
A note buyer can explain the purchase alternatives and provide the numbers associated with a full or partial purchase, but your tax adviser should explain how those alternatives would affect your individual tax situation.
What to do instead: If taxes could materially affect your decision, talk with your CPA or qualified tax professional before deciding how much of the note—if any—you want to sell.
Mistake #7: Assuming Your Note’s Value Will Stay the Same
A mortgage note’s value isn’t necessarily static. As payments are made, the remaining balance and number of payments change. Interest rates, property values, the borrower’s payment history and credit profile, and other factors can also affect how a buyer evaluates the note over time.
That doesn’t mean you should sell simply because conditions might change. If you’re satisfied receiving the monthly payments and don’t need the cash for another purpose, continuing to hold the note may make sense.
On the other hand, if you’re considering a sale, understanding what your note may be worth today gives you information you can use to compare your alternatives.
What to do instead: Periodically evaluate whether continuing to receive the payments still fits your financial goals. If you’re considering selling, get a current evaluation and compare a full sale, a partial sale, and keeping the note before deciding.
Before You Decide to Sell Your Florida Mortgage Note
Selling a mortgage note is a financial decision, and there’s rarely a reason to make it without first understanding your alternatives.
At American Funding Group, we start by learning what you’re trying to accomplish. We’ll review the note and available documentation, explain what we see, and discuss the alternatives that may be available—including a full sale, a partial sale, or continuing to hold the note.
We’ve been purchasing private mortgage notes since 1989, but that doesn’t mean selling is always the right answer. Our job is to give you enough information to decide what makes sense for you.
If you’d like us to evaluate your Florida mortgage note, call (772) 232-2383 or use the form below. There’s no obligation to sell.