Buying Notes and Mortgages
Will it cost me anything to get a quote?
There is no cost or obligation to get a quote. Just call us or complete the online form and we’ll give you an exact quote of how much cash we will give you for your note.
Will it cost me anything to sell my note to you?
No, we cover all of the costs. You will receive a wire for the amount that we quote to you.
How long will it take to get my cash?
Typically we close within 3-4 weeks, but we ask you to allow 45 days in case of any unforeseen title or foreclosure issues that need to be resolved.
How does the purchase process work?
If you like our quote, we’ll prepare a simple agreement confirming the details. We will gather information from you, order title work and an appraisal, and we may get a credit report on the payor. Once we verify all of the details, we’ll schedule the closing.
Where will the closing take place?
We typically close at a title company or attorney’s office in the county where the property is located. If you already have a title policy, we will close at the same title company or attorney’s office who issued the policy.
What documents do I need to give you?
If you accept our offer, in order to prepare the note purchase agreement, we will need to have a copy of the note, mortgage or deed of trust, and settlement statement from when you sold the property. (You’ll need to bring the original note and your driver’s license to the closing.)
We will also need proof of on-time pay history, typically copies of the checks or post-marked enveloped. If those are unavailable, we can sometimes use your bank statements showing the deposits made each month.
It will speed up the process if you also give us any previous appraisal or title work that you may have.
Prior to closing, we will call the homeowner’s insurance agent to have our name added to the property insurance as a mortgagee insured.
Are you going to contact the payor on the note?
We only contact the payor after you have signed our note purchase agreement and made the decision to proceed with the sale.
Can you still buy my note if payments have been late?
Each note is considered on a case by case basis. We may be able to still purchase the note depending on the other factors.
What if the property taxes are delinquent?
We generally do not buy a note if the property taxes are delinquent because the note would technically be in default. As the seller of the note, we do not allow you to pay the delinquent taxes out of your proceeds from the sale of the note.
Does my spouse have to sign the Note Purchase Agreement?
If the note is payable to both you and your spouse, both you and your spouse will need to sign the agreement.
Do you buy land contracts?
Yes, we buy land contracts. In some cases, we may want to help you convert the contract to a mortgage or deed of trust prior to our purchase.
Do you buy notes secured by mobile homes?
Yes, we can buy the note if the mobile home has been permanently affixed to the ground and is now considered real estate.
Do you buy notes secured by commercial properties?
Yes, we buy notes secured by owner-occupied homes, rental homes, commercial properties and land.
Will you buy a new note?
We prefer to have at least three months of seasoning, that is, that the payor has made at least three payments. The longer the seasoning, the more that we can pay for the note. Ideally, we like to see twelve months of payments, but it is not required.
Equity Holding Land Trust
EHT is not a trust: it is instead an ownership transfer mechanism that utilizes a land trust at its basis.
What are some of the methods used to take over another person's mortgage payments, say, in order to avoid the necessity of a new loan, down payment or a lender's credit review and approval process?
Several devices have been used for this purpose for years (e.g., unilateral lease options, land-sale contracts, contract-for-deed, all-inclusive mortgages, equity shares and bi-lateral lease-purchase arrangements); however, anyone using these devices has always had to remain ever alert and aware of their volatility and inherent dangers and downsides. One of which frequently argued-about “dangers” is the open violation the lender’s alienation provisions within most (if not all) mortgages these days (i.e., the “due-on-sale clause”- DOSC).
The due-on-sale clause enforces the lender’s requirement that the property’s ownership not be transferred during the term of the loan, under most circumstances. The DOSC warns the borrower that the lender can (and likely will) foreclose on the mortgaged property should it become aware that ownership of the security for its “loan” has been relinquished in any manner without it’s express knowledge and consent…EXCEPT: When the property’s title is legitimately transferred to an immediate relative; transferred due to the death of the mortgagor (borrower); transferred to a spouse of borrower; transferred by spousal quit claim in the event of marital dissolution; and/or transferred to an inter vivos trust wherein the borrower is, and remains, “a beneficiary (i.e., ‘one of the beneficiaries’)”; and which trust is revocable, inter vivos (effective during the lives of the parties), and does not, within itself, relate to a transfer of occupancy rights (‘although a property vested in such a trust can certainly be leased-out by means of a separate lease contract for up to 3 years). [See: 12USC1701-j-3]
It should be noted here as well that all of these “subject-to” transfer devices clearly subject the property and the parties (‘buyer and seller) to each other’s personal problems and potential litigation issues: including bankruptcy, probate, utility liens, and disputes in marital dissolution and creditor and IRS claims. In some states (Texas, in particular, some of these payment assumption methods have been declared illegal by statute (i.e., specifically the Lease Option and the CFD (Contract for Deed)…unless full title can be conveyed to a buyer within six-months following inception of the executory-contract arrangement (i.e., a transaction wherein ownership is held contingently to be released only at the promise, will or whim of the executor option or or vendor).
Can this trust transfer arrangement be used to accomplish the objectives of the seller-carry (i.e., the option, contract for deed, wrap-around or equity share) while completely avoiding all the standard risks and dangers of seller-carry, subject-to financing?
Absolutely! By placing one’s property into a title-holding trust (‘of the Illinois land trust variety) prior to the transaction and dealing with the disposition of the trust’s beneficial interest, rather than with the property’s deed all or in part, virtually all of the risks and dangers of subject-to financing (of any type) are eliminated.
By virtue of specific IRS regulations, a would-be buyer named as a co-beneficiary in the trust and as a triple-net lessee of the property, is fully entitled, under the law (IRC 163(h)4(D), to 100% of all fee-simple “bundle of rights” in real estate ownership, including full income tax deductions, without ever needing to be named in the mortgage or placed on the property’s title (‘until such time as the property would be sold, purchased outright or refinanced by the resident-beneficiary at some designated time in the future).
Are there any disadvantages in owning, managing or selling a property via the trust transfer method?
There are none. However some could conceivably find it inconvenient to be compelled to obtain the other party’s concurrence relative to matters relating to the property or its title that might jeopardize the other party’s interest, or that would involve permits, room-additions, major repairs or dealing with contractors and mechanic’s liens (‘although such liens would fail without full concurrence of the parties in that the owner of record is the 3rd-party trustee, who will not issue or sign a work order without constructively delivered, express direction by all beneficiaries.
Recall that the beneficiaries are merely directors of the trustee and the affairs of trust’s corpus (the property). Should a non-resident party (the “seller”) plan to be incommunicado or absent from the area for an extended time (‘or whom might simply prefer not to have to deal with any day-to-day issues), issuance of a Limited and Revocable Power of Attorney is recommended and can safely and conveniently remove all such concerns.
Would the resident beneficiary be inconvenienced if the settlor beneficiary just arbitrarily revoked the power of attorney?
Not really, in that such revocation would merely mean that the parties would henceforth need to abide by whatever is already written in their contract. Nothing changes. If some future occurrence or action by one party or another is agreed upon, it should be included in the documents from inception…otherwise express mutual agreement must be obtained.
Can someone acquire or dispose of commercial property by this method?
Yes. A land trust (the generic reference to an “Inter vivos, title holding, 3rd party trustee, co-beneficiary, Illinois-type real estate holding trust”) can definitely hold commercial property as well as agricultural or industrial property). Multiple beneficiaries can hold varying percentages of beneficial interest (analogous to the structure of a corporation or partnership, but without the same reporting requirements and restrictions). Do note, however, that due-on-sale protection under the 1982 “Garn St.-Germain Act (FDIRA)” extends only to residential property of four or fewer units, which means that with commercial property one is highly advised to obtain the lender’s permission before vesting the property in an asset-protection inter vivos trust (the lender will typically send you a form for that purpose, asking you to name the trustee, the initial beneficiary and the trust number and date).
Can a resident co-beneficiary in such a trust move from the property before the end of the agreement?
Yes. Although, all provisions within the agreements that comprise the contract must be honored, a resident beneficiary may lease or rent the property out, or leave it vacant, if the other beneficiary/ies agree and are not fearful of harm in the process.
What would happen if a beneficiary died during the term of the trust transfer (the EHTrust™)?
Beneficial interest in the trust passes, to the heirs of a deceased beneficiary, which heirs inherit exactly the same obligations, responsibilities, rights, and privileges as held by the original beneficiary. Nothing changes except for the names of the beneficiaries.
How is one’s placing a home into a land trust, and then leasing it out, viewed by another (new) lender with respect to the non-resident beneficiary’s applying for another home loan while his/her existing loan remains in place?
Having placed a property into the EHTrust(tm), the non-resident beneficiary will likely be evaluated as would be any “income property” owner. Although, the absence of maintenance costs and vacancy expense; and the higher than normal rent, will most often (if not always) provide for a higher-than-normal Income to Rental Expense consideration by the new lender. More likely, however, since one’s ownership of beneficiary interest in a trust is not real estate and is not listed in the property schedule on the new mortgage application, it will likely not be deleterious to the new loan’s approval once explained to the underwriter.
What happens when a resident beneficiary fails to make the payments when due?
In the event of default, a 3-Day Notice to Pay or Quit is issued; followed by an Unlawful Detainer Action. By agreement, the default (within itself) is constructive notice (to the other beneficiary/ies) of the defaulting party’s intent to relinquish his/her interest in the land trust. The trust may then be revoked and its property either – offered for sale, or returned to the original owner. It is agreed by parties that any claim for monetary benefit due to the defaulting party (if any can be proven) will be paid in full in the form of an unsecured promissory note; which note shall become due only upon sale of the property.
It should be noted that any proof of equity (by formal MAI appraisal only) is the burden of the defaulting party who, prior to receipt of any moneys, must bring all deficiencies current, and pay a $2,000 “Default Fee” in addition to late fees and/or any delinquent taxes and insurance…plus the cost of the MAI (audit-able) appraisal.
What if the property loses value during the term of the EHTrust™?
If, at the end of the trust agreement, the property can’t be sold (or purchased by the resident beneficiary) for enough to return the non-resident beneficiary’s initial contribution (e.g., his/her equity at start); and if the non-resident were to choose not to reduce the contribution amount: then the resident beneficiary would have the right to simply vacate the property with no further obligation. Or, by mutual agreement, the parties can agree to extend the contract or reduce the buy-out amount. Note that, as is the case with any real estate purchase, down-payment moneys, or costs of improvements can always be lost due to ordinary downward trends in the economy and real estate demand.
How is the “Mutually-Agreed Value” determined at the inception of the transaction, in so much as there is no sale price per sé?
The “MAV” (the mutually agreed value agreed-upon between the parties) is set purely for the purpose of determining the non-resident beneficiary’s initial contribution at start (e.g., his/her “equity,” or “equity-credit” and the amount of any non-recurring closing costs paid in), and is generally the greater of either: A) the fair-market-value of the property inferred by a professional Comparative Market Analysis, or B) the value of the property reflected by a mutually acceptable appraisal; or C) the total amount of all existing encumbrances against the property. Simply stated, the MAV includes all encumbrances, plus the settlor’s (the non-resident beneficiary’s) equity at inception.
Why might a homebuyer choose a trust transfer acquisition, even if the underlying mortgage were to be greater than the property’s value?
A property’s “over-encumbrance” is often perceived as simply a trade-off for one’s ability to be a homeowner without the necessity of qualifying for a mortgage loan, or one’s lack of a standard down-payment or having weak or no credit history. In that the trust transfer arrangement may avoid the handicap of self-employment, newness on the job, newness in the area or the country, limited job history, or marginal credit history – one might choose to disregard the over-encumbrance, say, seeing it more as a “prepayment” penalty for early termination. The fact is, that if by the end of the agreement’s term, the resale value of the property has not increased sufficiently to cover the loan against it and any money owed to the non-resident, then the resident may – 1) petition to extend the agreement, or 2) just move out and walk away. If the monthly (after-tax) payment is in keeping with normal rent, and if the loan need not be paid-off at any particular time, the prudent acquiring party might find an over-encumbrance wholly inconsequential.
Could a mortgage lender claim that the land trust transfer method violates its due-on-sale clause?
It is, of course, possible but not at all practical. No one can predict what anyone–especially a mortgage lender–could [might] “claim.” Such an assertion of impropriety would, however, be unlikely and directly opposed to federal law (i.e., the Garn-St. Germain Act: 12USC1701-j-3). It’s conceivable that a lender’s clerical staff or even its legal department could, at first, misconstrue the “intent” of the trust transfer, asserting that it was a scheme to circumvent the loan’s due-on-sale clause. However, when such a claim is answered (as has happened several times in the past), the court would need to determine whether or not any laws had been broken; as well as “how” and “if” the plaintiff had been injured.
In actuality, the true (real) intent of the process is to provide asset protection for the parties and a means for passing income-tax benefits to a tenant-beneficiary in exchange for higher than normal lease payments — ‘while carefully avoiding A) a due-on-sale compromise, B) obfuscation of title and 3) unauthorized transfer of real property ownership.
The trust’s resident beneficiary does not receive real estate ownership, or any bargain purchase option at termination, ‘i.e., for any purchase amount that is less than fair-market-value (less any accrued moneys due him by the trust). If, and/or when, the resident beneficiary would choose to acquire ownership of the property, such purchase is by necessity by means of an ordinary offer and acceptance, followed by an ordinary mortgage loan application…or a petition for a bona fide lender-approved Assignment and Assumption of the existing loan (acceptance of which is unlikely).
In its nearly 100 years of use in the US, has the land trust transfer method ever been challenged by a lender claiming that its due-on-sale provisions were compromised by creation of the trust, or by the unrecorded and private assignment of beneficial interest to a third party?
Yes. But the challenges were immediately dropped in each case when the plaintiff was advised to review the Garn St. Germain (Law) verbiage (the FDIRA 12USC1701-j-3). It might be noted, however, that the Land Trust in many states, though fully accepted, is “statutory” in nature, meaning essentially that there is no real judicial history concerning it, and that no specific “Land Trust Act” per sé exists [yet] within the state. Although we know of no such actions in recent years, a few such actions have been brought and failed in other states — whereby in every case the courts found in favor of the defending party (‘except in those cases wherein 100% of a trust’s beneficiary interest was sold or assigned, or where corporate beneficiaries have attempted to use the device to transfer ownership in a commercial enterprise without authorization).