A lot of sellers know their payer. Some are family, a friend, or a former tenant. So the first question I often hear is, "What happens to them if I sell?"
Here's the honest answer.
Short version: Almost nothing changes for your payer. Same balance, same rate, same payment, same due date. The only real change is where they send the check.
What stays the same
When you sell a note, the buyer steps into your shoes. The note and the mortgage or land contract stay exactly as they were written.
- The balance doesn't change.
- The interest rate doesn't change.
- The monthly payment doesn't change.
- The due date and the payoff date don't change.
- Their right to the home doesn't change.
A note buyer can't raise the rate or call the loan just because it was sold. The paperwork your payer signed still controls.
What changes
Where they send the payment. After closing, your payer gets a letter. It says the note was sold and tells them where to pay. Most buyers use a licensed loan servicing company. That company sends statements, takes payments, and keeps the records.
They get better records. Many payers like this part. A servicer sends monthly statements and a yearly interest statement for their taxes. That's more than most private sellers provide.
They may get more ways to pay. Servicers usually take online payments, bank drafts, and checks.
How the handoff works
- Before closing, the buyer confirms the balance. The payer may get a short call or a form to sign. It confirms the balance, the payment, and that they're current. This protects everyone.
- At closing, you sign the transfer papers. You endorse the note and assign the mortgage, or assign the land contract. These get recorded.
- After closing, the payer gets two letters. One from you, or on your behalf, saying the note was sold. One from the new servicer saying where to pay. I give the payer time to switch so nobody gets hit with a late fee for paying the old address.
Will my payer be upset?
Most aren't. Many don't care who they pay, as long as the terms stay the same. Some are glad to get statements and an easy way to pay.
If you have a close relationship, tell them yourself before the letter shows up. A quick call goes a long way.
What if the payer falls behind later?
That becomes the note buyer's problem, not yours. You've been paid. If the payer misses payments, the buyer or the servicer handles it.
A good buyer works with the payer first. Foreclosure costs time and money. It's the last option, not the first.
Questions to ask a note buyer about your payer
- Who will service the loan, and are they licensed?
- How will my payer be told about the sale?
- How much time will they get to switch where they pay?
- What happens if my payer has a hard month?
If a buyer won't answer these clearly, find another buyer. Read what is a note buyer for more on how to pick one.
What if I only sell part of the note?
With a partial sale, the payer sends payments to the buyer for a set number of months. After that, the payments come back to you. The payer's terms never change. They just get a letter at each switch.
Frequently asked questions
Do I need my payer's permission to sell my note?
Usually not. Most notes can be sold without the payer's consent. Check your paperwork for a clause about assigning it.
Can the new owner change my payer's interest rate?
No. The rate, payment, and terms are set by the note. A buyer can't change them on their own.
Will my payer know I sold the note?
Yes. They need to know where to send payments. They'll get a letter after closing.
Does my payer have to sign anything?
Sometimes. Many buyers ask the payer to confirm the balance and that they're current. It's a short form, not a new loan.
What if my payer is a family member?
The same rules apply. Their terms stay the same. Talk with them before the sale so they hear it from you first.
Ready to see what your note is worth? Get a free quote or try the calculator.
Larry has invested in real estate since 2006 and has bought more than 300 mortgage notes. He runs LJH Investments, LLC, an Ohio company based in Madison, Indiana. More about Larry
This article is general information, not legal or tax advice. Laws change. Talk with your own attorney and tax adviser about your situation.