Selling a Partial Note

2013 July 9

Many note sellers are not even aware that they have the option to sell a partial note. Actually they aren’t exactly selling a partial note, they are selling a portion of the future payments for a lump sum of cash now. This is often a better deal for note sellers, particularly for the more difficult notes such as poor credit for the borrower, little equity and low seasoning. So how does selling a partial note work?

When you sell a partial note, you sell a certain number of future payments, usually 3, 5, 7 up to 10 years in some cases. You really can’t sell a piece of a note as the note buyer would not have the ability to foreclose should the borrower default. The note buyer (just as you the seller) needs to own the note and security which is a Deed of Trust, mortgage, etc. depending on the state. What happens at the end of the period you sold the payments for is the note and security revert back to you. However, in most cases the note or mortgage buyer will be very receptive to buying more month’s payments or even the remainder of the payments. Some sellers treat their notes kind of like a ‘piggy bank’.

If you don’t have to sell your note in full, a partial is nearly always a better deal since the payments aren’t discounted out as far so each time you sell some note payments, your discount is less.

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