An Annuity Is A Series Of Equal Cash Flows How to Sell Your Promissory Note – Real Estate – Business Annuity Structured Settlement

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How to Sell Your Promissory Note – Real Estate – Business Annuity Structured Settlement

First, the definition of promissory note:

A promissory note is defined as ‘a promise to pay a specified amount on a periodic or future lump sum basis in accordance with the terms and conditions contained in the note document’. Usually, a promissory note is created during a tangible asset sale event where the asset seller takes back a promissory note (promissory note) instead of cash.

Instead of cash when you sell your real estate or business or accept a structured settlement, owning a promissory note is a good idea because you’ll have a steady stream of guaranteed monthly payments at a reasonable interest rate. right?

Then, you soon realize that:

1. The interest rate charged by you is now much lower,

2. The payer of the note does not always pay on time so you have to call and demand payment,

3. You have to pay income tax,

4. You notice that the value of your note is depreciating every day, and,

5. You can keep the lump sum of note money for better or now-needed use.

So, you decide to sell your promissory note.

1. First you went to your bank and they didn’t buy it or have any idea how to sell it.

2. Next, you ask your friends and find a note broker together. So, you search the internet and find a million web sites to be able to buy your note. You have spoken to a few but no satisfaction or few return calls. Now there is frustration.

Here’s how a note buying business works:

1. Notes are purchased from experienced, reputable investors who use their own money to earn long-term returns on investment. Investors can be individuals, groups, companies, pension funds or special funds.

2. The note is valued according to the long-term yield to the investor. It is called, Time Value of Money. Or, a dollar today is worth more than a dollar tomorrow. Therefore, your note may be purchased at a discount or lower than the current principal amount to provide the long-term income required by the investor.

3. Yield and value of the note Note interest rate, credit score of the note issuer, term of the note, payment schedule, loan to value ratio (LTV), payment equity in the property, security for the note and terms of the note.

4. Your note can be purchased by an investor based on his required note type, note criteria and required income.

5. Note investors specialize in different types of notes. Some trusts only buy real estate notes or mortgage 1st deeds, some only business notes or annuities, etc. buy To cut a long story short… You don’t know whether the person you are talking to is a broker or an investor or both or what note type, criteria and yield he needs. Disappointing. Now you think that all note investors and brokers and the entire note buying industry are lazy, unethical, unprofessional and worthless. Well, I admit that part of that is true for many unprofessional brokers but real investors and real brokers are here, honest, professional and providing a valuable service. how do you know Just ask him or her if he/she is a broker or a direct investor, what kind of notes they want and what is their criteria and process. More on this in another article.

Here’s what you need to know and do about your promissory note:

a The value of your note is determined by when and how you create it. When creating your note, assume you want to sell it within the first year. If built properly and professionally, it will have high value. Professional sense means using the services of an experienced business or real estate attorney to prepare your listing. Never use one of the simplified note forms available anywhere. Consider this… Why do you think real estate lenders use excellent, complex, complete loan documents tailored to their own loan criteria? Further, real estate secured notes are valued at face value or the sale price of the property minus the payor’s equity and the creditworthiness of the payee. Business notes are valued based on the note issuer’s creditworthiness and historical business performance.

b Highest denomination notes are those whose current note face value does not exceed:

i 80% of the sale price of the immovable property if it is a trust note/mortgage 1st deed or 20% if it is a 2nd deed of trust and the aggregate of the 1st and 2nd does not exceed 80% of the sale price or,

ii If a business is registered, 67% of the business sale price.

c The payee responsible for the performance (payments) of the note must have a credit score greater than 640 (the national average credit score is 678) when you create the note (the lower the credit score, the lower the value of your note). Always get the payer’s current credit report before completing a note transaction. You have a legal right to request or receive (under the federal Fair Credit Act) because you will be their debtor. Go to any of the three credit reporting agencies and get a tri-merge credit report (it will give you a paired score and report from each of the three credit reporting agencies). You will need the payee’s full name, address, SS# and date of birth. You do not need the payer’s consent to get your credit report because you will be the payer’s creditor.

d Note payment should be monthly.

e Note conditions should be:

i For Real Estate Notes: ‘Amortized Monthly, Payments in Arrears’. Or, amortized monthly, 15-30 year arrears with full balloon payments in 5 years. Don’t accept ‘interest only, full balloon at the end’ terms.

ii For Business Notes: ‘Amortized monthly, payments in arrears not exceeding 5 years’.

f Your note must bear interest linked to prime + 2%. Prime on this date is 8.25%.

g Your business-promissory-note must have a collateral personal guarantee from the payee equal to the original principal amount of your note. This collateral must be tangible real estate owned by the payee outside of the business and note transaction. Your note must have at least a personal guarantee.

h above are the basics. Your skilled attorney should know how to properly prepare your note and who we are so that he can contact us for knowledge and suggestions from our web site.

Now, selling your note:

1. Your first goal is to get a cash-buy-quote. This can only be provided by direct investors. A broker will take your information, find an investor, get a quote and give you that quote minus his fee. Sometimes brokers have investors who will give you more cash than professional investors, but usually there is a catch. Don’t get me wrong. Note brokers serve a valuable purpose.

2. Collect all the facts about your note and property..

3. Find a reputable note broker or direct investor. Search the net with keywords ‘sale note’, ‘note buyer’, ‘mortgage buyer’, ‘annuity buyer’, ‘structured settlement buyer’. Reach out to those you like and ask questions. Just remember, there are very few real direct investors. just ask

4. If you want to use a broker, (a reputable note broker will request specific information about your note; he will package the information and contact us and other note buyers with whom he has brokerage agreements). Some will broadcast your note to everyone on the net. Broadcasting will depreciate your note to almost $0.00. So, if you want to use a broker, ask him to provide you with a list of his contracted buyers, and have him agree in writing that he only presents your notes to those you agree to.

5. If you want to list your note for sale on the Internet yourself, there are many note listing sites where you can list your note and investors will find your note and contact you. This is called ‘broadcasting’. See #4 above.

6. A note investor/buyer will request detailed information about your note before providing you with a cash-purchase-quotation. Logical, right?

7. You should receive numerous phone and email communications from your chosen broker or investor before providing a cash-buy-quote.

8. Your note cash-purchase-quotation is usually a net-cash-to-you quotation. Sometimes it will be “$XXXXX.XX” with your provided rating and title. You should always know what your net-cash will be after sales and funding are available. just ask

9. After you accept a cash-buy-quote:

a You will be requested to agree to the note-purchase-quotation and provide certain note-related agreements and documents. (You already have most of the documents.)

b Note-Funding-Processing-Service will perform ‘Due Diligence’ on note, assets, documents, credit and history.

c Assuming all components of the Note meet due diligence, your Note will enter “Transaction Processing and Funding” and you will receive your cash funds. Normally this process takes 30 days.

Bottom line:

1. Your promissory note is your critical financial asset. Treat him with respect.

2. Prepare your note so that it can be sold for maximum cash.

3. Make all logical note, asset and payment credit information readily available if you want to sell for the most cash.

4. Choose a Note Buyer/Investor/Broker/Listing Service that provides you with the best service.

5. Inform your existing note payer that you intend to sell your promissory note to which he is a payee. It will not have any negative effects. Only the one to whom he makes his current payments will experience that change.

6. Don’t get caught up in the excitement of the deal.

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