In todays email:

I will break down seller finance note brokering from A-Z.

• What is note brokering

• General steps of note brokering

• How to find notes to broker

• Why do people sell their notes

• How much do you make brokering notes

• Who are some of the note buyers/sellers

• Summary

How To Broker Notes For Fast Cash

What is note brokering

Brokering notes refers to the practice of facilitating the buying and selling of promissory notes or other debt instruments between interested parties. A promissory note is a legal document that outlines a borrower's promise to repay a specific amount of money to a lender within a defined timeframe.

In the context of brokering notes, a broker acts as an intermediary, connecting buyers and sellers of these debt instruments. The broker's role involves identifying potential note holders looking to sell their promissory notes and matching them with investors or buyers who are interested in acquiring these notes.

Brokering notes typically involves conducting due diligence on the promissory notes being offered for sale, including assessing the creditworthiness of the borrower and evaluating the terms and conditions of the note. A good broker helps negotiate the terms of the transaction and facilitates the exchange of funds and legal documentation between the parties involved.

The buyers of the notes (investors) can diversify their portfolios and earn passive interest income through purchasing these debt instruments. Sellers of promissory notes, on the other hand, can access liquidity by selling their notes and avoid waiting for their money.

It's worth noting that brokering notes may be subject to regulatory requirements and licensing depending on the jurisdiction. Therefore, it is important for brokers to comply with applicable laws and regulations governing the buying and selling of securities and debt instruments.

General steps of note brokering

1. Identifying note holders: You locate individuals or entities that hold mortgage notes and are interested in selling them. These note holders could be private individuals, banks, lending institutions, or other investors.

2. Assessing the mortgage notes: You evaluate the mortgage notes to determine their value and attractiveness to potential buyers. This involves reviewing the terms of the note, the creditworthiness of the borrower, the property's value, and any other relevant factors that could impact its marketability.

3. Finding buyers: Once you have identified mortgage notes for sale, you search for potential buyers or investors who are interested in purchasing them. These buyers could include individuals, real estate investors, hedge funds, banks or other financial institutions.

4. Negotiating terms: As a broker, you help negotiate the terms of the transaction, including the purchase price, any potential discounts, and other contractual details. Your goal is to facilitate an agreement that is acceptable to both the note holder and the buyer.

5. Facilitating the transaction: Once the terms are agreed upon, you assist with the necessary paperwork and documentation to complete the sale. This may involve drafting or reviewing contracts, coordinating with attorneys or title companies, and ensuring a smooth transfer of the mortgage note from the seller to the buyer.

6. Receiving compensation: As a broker, you earn a fee or commission for your services. This fee is typically a percentage of the total transaction amount and is paid by either the note holder or the buyer, depending on the specific arrangement.

How to find notes to broker

Finding mortgage notes to broker involves various strategies and approaches. Here are some methods you can use to locate potential mortgage note holders.

1. Networking within the real estate industry: Build connections with professionals in the real estate industry, such as real estate agents, mortgage brokers, loan officers, and real estate attorneys. They may come across individuals or institutions holding mortgage notes that are available for sale.

2. Direct outreach to financial institutions: Contact local banks, credit unions, and lending institutions to inquire about any mortgage notes they may have on their books that they are willing to sell. Establish relationships with their asset managers or loan officers who handle distressed assets or non-performing loans.

3. Online platforms and marketplaces: Explore online platforms and marketplaces specifically designed for buying and selling mortgage notes. These platforms connect note holders with potential buyers, and you can participate as a broker. Examples of such platforms include Paperstac and NotesDirect.

4. Public records and court filings: Search public records, such as county courthouse records, to identify mortgage note holders who may be interested in selling their notes. For seller finance notes you want to look for notes that are owned by individuals or small LLCs and not major banking institutions like Wells Fargo or Bank of America. You could also look for foreclosure filings, lis pendens notices, notice of default or any other relevant records that indicate potential distressed note situations and reach out to the note owner.

5. Advertising and marketing: Create a website or online presence that showcases your services as a mortgage note broker. Utilize search engine optimization (SEO) techniques to make it easier for potential note holders to find you. Consider running targeted online advertisements like Facebook Marketplace or placing ads in local real estate publications to attract interested parties. Direct marketing (i.e. postcards and letters) to the owner of the note is one of the best ways to find a note to broker.

6. Attending industry events and conferences: Attend real estate conferences, seminars, and industry events where you can network with professionals and potential note holders. Engage in conversations, exchange business cards, and express your interest in brokering mortgage notes.

7. Referrals and word-of-mouth: Let your network know that you specialize in brokering mortgage notes. Inform friends, family, and colleagues about your services, and ask for referrals. Talk to attorneys, CPAs, real estate agents, mortgage brokers and other professionals about what you do. Personal recommendations can be a valuable source of leads.

Why do people sell their seller finance notes

There are several reasons why someone might choose to sell their mortgage note. Here are some common motivations:

1. Immediate access to cash: Selling a mortgage note allows the note holder to convert the future stream of payments into a lump sum of cash now. This can be beneficial for individuals or institutions that have a pressing need for funds, such as paying off debts, covering medical expenses, or making other investments.

2. Diversification of investments: Holding a mortgage note represents a concentrated investment in a single loan. Some note holders may prefer to sell their note to diversify their investment portfolio and reduce their exposure to a specific loan, property or area.

3. Mitigating risk: Mortgage notes come with inherent risks, including the possibility of default by the borrower or fluctuations in the real estate market. Selling the note can allow the holder to transfer these risks to a buyer who may have a higher risk tolerance or expertise in managing such assets.

4. Opportunity to profit: In certain situations, the note holder may have purchased the note at a discounted price or acquired it through a distressed asset sale. Selling the note at a higher price than the initial investment can result in a profit or a favorable return on investment.

5. Simplifying finances: Owning a mortgage note involves ongoing administration, including monitoring payments, handling borrower communications, and managing legal and regulatory compliance. Selling the note can relieve the note holder of these responsibilities and simplify their financial situation.

6. Changing investment strategies: Investment priorities and strategies can evolve over time. Selling a mortgage note may align with a note holder's changing investment objectives or their desire to pursue different opportunities in the market.

It's important to note that the specific reasons for selling a mortgage note can vary depending on the individual or institution involved. Each situation is unique, and the decision to sell a mortgage note should be carefully considered based on the note holder's financial goals, circumstances, and risk tolerance.

How much do you make brokering notes

The income potential for brokering mortgage notes can vary widely depending on several factors, including the specific terms of each transaction, the value and volume of notes being brokered, and the fees or commissions negotiated with the parties involved. Here are some considerations regarding the potential earnings:

1. Percentage-based commission: As a mortgage note broker, it is common to earn a percentage-based commission on the total transaction amount. The typical commission ranges from 1% to 6% of the note's face value or the purchase price. However, the specific commission rate can be influenced by various factors, including the complexity of the transaction and the level of expertise and experience you bring to the table.

2. Note size and volume: The size and volume of the mortgage notes you broker can significantly impact your potential earnings. Brokering larger notes or handling multiple transactions simultaneously can lead to higher commission amounts.

3. Negotiation skills: Your ability to negotiate favorable terms for both the note holder and the buyer can play a role in determining your income. Skilled brokers who can secure better prices, discounts, or more advantageous terms may be able to earn higher commissions.

4. Market conditions and competition: The state of the mortgage note market and the level of competition among brokers can influence earnings. During active market periods with high demand for notes, brokers may find more opportunities and potentially earn higher commissions. Conversely, in slower market conditions or when facing significant competition, it may be more challenging to secure transactions with lucrative commissions.

5. Additional services: Some brokers may offer additional services beyond the basic transaction facilitation, such as note evaluation, due diligence, or consulting. These value-added services can potentially earn higher fees and increase your overall earnings.

It's important to note that there are no fixed or guaranteed income figures for brokering mortgage notes, as earnings can vary significantly based on individual circumstances and market conditions. It's advisable to establish clear fee structures, communicate openly with clients, and build a reputation for professionalism and expertise to maximize your income potential as a mortgage note broker.

Who are some of the note buyers/sellers

I listed below just a few of the many companies that purchasing notes. Some specialize in buying seller finance notes, some buy institutional notes, some performing, some non-performing and some both.

1. Compel Capital is the name of our company that does private lending, but also buys seller financed notes and land contracts both performing and non-performing. The Note Authority LLC is our company that buys mainly institutional notes both performing and non-performing.

2. Amerinote Xchange is a leading buyer of seller-financed mortgage notes and real estate contracts. They work with note sellers across the country and offer competitive pricing for performing and non-performing notes.

3. First National Acceptance Company is one of the largest direct purchasers of performing land contracts, deeds of trust, private mortgages and other types of real estate notes. A principal buyer of real estate notes since 1974 and a subsidiary of First National Bank of America, which was established in 1955.

4. Colonial Funding Group buys and sells performing and non-performing notes and works with individual note sellers looking to sell their owner-financed notes for a lump sum payment.

5. NotesDirect is an online trading platform for note investors looking to acquire loans secured by residential real estate. It is run by Colonial Funding Group. The platform allows users to search for loans, manage offers and complete sales transactions online. There are three primary asset classes: Performing loans, non-performing loans, and Real Estate Owned (REO) properties. Interested and previously vetted buyers can submit qualified offers in a non-auction format.

6. Boston Note Company is one of the leading buyers of privately held notes in the US. They work with all grades of credit, secured by all types of real estate, nationwide. They have been in business for over 25 years.

7. Seascape Capital is a note buying company that specializes in purchasing owner-financed mortgage notes and land contracts. They have been active in the industry for many years and have a strong presence in the seller finance note market.

8. NoteInvestor is a smaller company that buys only seller financed notes.

It's worth noting that the landscape of note brokering is diverse and encompasses a wide range of companies, individual brokers, and platforms. Additionally, new companies and brokers may emerge over time, while others may change and some will close. It is advisable to conduct further research and stay updated with industry news and developments to identify the current prominent players in the note brokering industry.

Summary

Brokering notes is a great way to start in the note business, especially if you do not have a ton of capital. Not only can you make money, but it is a great way to get experience in the note business. You will see more deals, be involved in more closings, learn how established buyers price notes, and you will see the process note buyers use when vetting a note. You can also ask questions of the buyers you have established relationships with and eventually you will get comfortable enough to buy notes for your own portfolio.

Check out this prior newsletter which explains the size of the seller finance note market if interested. It does not cover the size of institutional note market which is enormous (in the trillions).

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Last weeks POP QUIZ was…What is right of redemption when a property goes to foreclosure?

ANSWER:  The right of redemption in the context of real estate foreclosure refers to the legal right of a borrower or property owner to reclaim their property after it has been sold in a foreclosure auction. It provides an opportunity for the borrower to repurchase the property under certain conditions within a specified time frame.

The specifics of the right of redemption can vary depending on the jurisdiction and the type of foreclosure process involved. Here are a few common types of redemption rights:

1. Equitable Redemption: This type of redemption right allows the borrower to redeem the property by paying the total amount owed, including the loan balance, interest, and costs incurred during the foreclosure process, before the sale is confirmed.

2. Statutory Redemption: Some jurisdictions have laws that grant the borrower a specific period after the foreclosure sale to redeem the property by paying the foreclosure sale price, plus any additional costs and interest.

3. Judicial Redemption: In certain states, borrowers may have a right to redeem the property even after the foreclosure sale is confirmed by the court. They can do so by paying the sale price, interest, costs, and possibly other fees within a specified timeframe.

This weeks POP QUIZ: What is an Allonge?

Check out next weeks newsletter for the complete answer.

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