I often get questions from beginners in the mortgage note business wondering about how to make it work as a broker or investor in notes. I’ll go over a few things here to answer some of these basic questions. Hopefully this will give some answers to common questions and I hope it will help clarify the waters a bit about the note business. It is important that you understand the basics of the business you plan on working.


The first item I want to clarify is that I am talking about privately held mortgage notes. Generally speaking, banks are not interested in selling their notes. If they are going to sell notes they will want to do so in quantities often referred to as a portfolio of notes. You should also understand that such institutions will be less likely to sell good performing notes for much of a discount. this is their business. It is their bread and butter and they are not usually interested in selling those notes. that is why your focus will be to find individual private note holders. These private note holders are individuals who have sold a property and for whatever reason have decided to hold the note themselves and receive the payments over time.


Often these private note holders are not finance savvy and perhaps did not want to hold a note in the first place. This happened in the course of selling their home or property in order to get the sale to go through but was not something they planned on. Ultimately they want the cash and not small payments over time. These individuals are the ones you are looking for in order to buy or broker a note. When you look through public records, you are looking for lenders who are private individuals. Most of the data will be banks and big lending institutions. You will skip by these notes looking for those few that are private. The document you will look for will vary from one state or county to another but generally it will be a trust deed, deed of trust or land contract. These documents will often be abbreviated in the public record.


Security
So why invest in private notes? What is the appeal and what secures it if the buyer stops paying? You must understand that a private note is a security instrument just like a bank mortgage note. The property is the security behind the instrument. If the buyer stops paying then you have the right to foreclose. Of course foreclosure is not the goal of most investors and brokers. It is not a fun nor cheap process. It can be a real pain with a lot of costs and hassle. the best option is to work with your buyer as much as possible to keep them in the home and making their payments. This is why an investor in this industry will do their due diligence and why they prefer notes with a history. If the property has a value higher than the note balance and there is a history of a year or two on the note payments then it makes a more secure investment. It is more likely that a note that is seasoned with a payment history will continue to pay and there will be no need for foreclosure.

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