If you hold a trust deed note and receive a stream of recurring payments, you can sell the note to get a large cash payment now. This can help with current bills and transfers the risk of default to the buyer. The note will be sold at a discounted rate, so you get less than you would have had you waited until the loan maturity date. You may also be able to sell part of the note for instant cash and retain rights to some of your future payments. The discount is lower on a partial sale because the buyer's risk is reduced.
How a Trust Deed Note Works
A trust deed note conveys title from the seller to the buyer in a seller-financed real estate transaction. A trustee holds the title while the buyer makes regular loan payments to the seller. The trustee is usually a title company, but can be any individual or company as long as it is not affiliated with either the buyer or seller. When the loan is paid off, the buyer gets title to the property free and clear.
Locating a Buyer
Shop around to several deed brokers to find the best deal. Try to plan ahead so you are not desperate for cash and ready to take the first offer, even if it is not profitable. You can usually get an appraisal and quote for free, so it cannot hurt to get multiple offers to compare. Contact your state real estate licensing board for a list of recommended deed brokers. You can also search online, but be wary of shady brokers. You will be required to provide relevant details, such as the term of the note, the sale date and the priority of the note when obtaining a quote from a broker. Before agreeing to any deal, check the broker's history to see whether there are any current fraud claims with the state attorney general.
The broker will estimate the present value of the note based on the risk of the borrower defaulting, the loan payment terms and the type of property used as collateral for the note. The borrower's credit score and past payment history are used to determine the risk of default. The amount of the down payment also affects the risk. A higher down payment makes it less likely the borrower will walk away from the property instead of trying to catch up any back payments. A large balloon payment increases the risk of the borrower not being able to afford the payment.
Include provisions in the sale contract specifying which party pays the recording fees. Both parties must sign and date the sale contract for it to be valid. Depending on the laws in your state, the contract may also need to be notarized. When sending the final closing documents to the deed buyer, include the fully-executed sale contract, the trust deed note, a deposit report from your bank demonstrating the borrower's payment history and the escrow settlement statement for the initial sale of the property. The buyer will order an appraisal and title update after receiving the documents. If there are no issues, you will receive the funds via the agreed-upon payment method, such as a wire transfer or cashier's check.
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