What do you need to know to talk to a mortgage buyer?

July 18, 2011

Articles

talk with a mortgage buyerHas the time come to sell the payments you are receiving from a mortgage to buy a mountain cabin, pay tuition, pay bills, or eliminate the worry of record keeping, default or potential foreclosure?  Is it time to call a mortgage buyer?

Before you call, be sure to have a copy of your promissory note, mortgage and closing statement from your property sale.  If you can’t find copies of these documents, call the attorney or title company, which handled the property sale and ask for copies. These documents will enable you to answer the questions of the note buyer.

For illustration purposes, let’s assume that you hold a first mortgage on your payer’s home. The sales price was $80,000 with a down payment of $20,000.  You took back a first mortgage of $60,000, paid off over 20 years, at 10% interest and a monthly payment of $579. The note is four years old; 48 payments have been made. These payments totaled $27,792.  The balance on the note is $55,361.

You send us copies of your documents. After careful study, our mortgage buyer offers to purchase the contract for $50,101 or 90.5 cents on the dollar. (The mortgage, which you actually own, may be worth more or less than this example).  But you may be thinking:

Why is the offer less than the balance?

A mortgage buyer will measure many investment criteria.  They understand that investing in a mortgage, is not like investing in a CD or government bond with guaranteed interest and payments, paid on time. The note buyer considers risks such as: will the monthly payments be paid on time?  Will the payers maintain employment so that they can make the payments? Will they maintain the property? Will they keep up the fire insurance and the property taxes? Will they be able to avoid divorce with its devastating financial consequences?  Will the real estate hold its value?

Unfortunately, there is always the risk of default.

No one can predict the future.  And, a mortgage that goes into default is a major problem for the note buyer.  Not to mention, that a foreclosure can take years and cost plenty of money to resolve.   The note buyer has to be compensated for this risk.

And, the sales price of your mortgage is affected by the purchasing value of money.  A mortgage represents a cash flow, with the same monthly payment, spread out over several years.  It does not grow in value like gold, rare coins, or fine art.  If the cost of goods and services goes up and the value of a dollar goes down, there is a real problem since the payment amount won’t stay even with inflation.

Think back for a moment.  What were the taxes On this property ten years ago?

 Compare those taxes to today.  What did it cost to go to a ball game or a show ten years ago? How does that compare to today’s cost?  Wouldn’t it be nice to buy a new car for the cost of one ten years ago? How about today’s cost of medical care compared to ten years ago?  Every day our dollars buy less.  The note buyer’s real concern is that the mortgage payments will purchase less goods and services as time goes on.

 OK, you now understand this, but you may be wondering, how can I do better in this transaction?

First, let’s review our example.  You received $20,000 as a down payment plus $27,792 (in payments over four years) and you just received a cash offer of $50,101.  You will have received $97,893 or about $18,000 more than the sales price over four years.

While that’s not too bad, you may do even better.  Talk with us to explore all options.  Tell us the reasons why you want to sell your note so we can design a mortgage purchase plan tailored specifically to meet your needs.

You see there are many ways to structure the sale of your mortgage so that you receive more money.

For example, it may be better for you to sell only a portion of your mortgage.  Let’s assume that you would like $30,000 to buy a mountain cabin.  After discussion, we offer to buy the next 84 payments of your contract for $30,022. You would assign the next 84 payments to us and you would get the note back when it had 108 payments left. When you receive the note back, assuming all payments had been made on time, the note would have a balance of $41,126.  Your total received at that point would be $118,942 counting the down payment, 48 prior payments, the cash offer and the value of the mortgage when you get it back.

If your mortgage has a balloon, you could sell all of the mortgage, or only the payments, keeping the balloon for yourself.   As you can see there many purchase options that can benefit you, just make sure that you work with a mortgage buyer who will explore each option, including rewriting the mortgage, to eliminate the balloon.

It’s extremely important that you be comfortable in  the process of selling your mortgage.

 Be careful of dealing with anyone who casually makes you a purchase offer over the phone. There are many factors to analyze, and we are talking about YOUR money, so only deal with a buyer who makes you an offer after a thorough analysis and review of the paperwork.

 Be sure to work with a mortgage buyer who can overcome obstacles.

 A number of problems can occur.  Problems occur if the documents were prepared in error, the original note was lost, the property has declined in value, the payers have stopped making payments, or they haven’t paid property taxes, federal income taxes or hazard insurance. Some notes can’t be sold as written but can be sold with modifications.  It is crucial that you work with a buyer who completely understands the process and has the resources, drive, persistence, and ability to overcome obstacles to complete the sale of your mortgage in a timely way.  Work with someone whom you can trust and who will work FOR YOU in your best interest.

If you would like to find out what your mortgage is worth, please complete the Mortgage Worksheet.  Or if you’d like to speak with a mortgage buyer or ask any questions, please feel free to call us at 772–232–2383.  And, we will help you in any way that we can.

Or if you have comments on the above information, please feel free to leave your comments in the comment box. We’d love to hear from you.

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