Buying & selling mortgage notes, explained.

Par means paying full price, or very close to it, for a note, with little or no discount. A note gets closest to par when everything lines up: a fully documented loan, a strong and well-documented payment history, real borrower equity, a fair interest rate, and clear proof the borrower can and does pay. The cleaner and safer the note, the closer to par I can pay. Most notes sell at some discount below par because of risk or missing pieces, and closing those gaps is how you push your price up toward par.

A discount is the amount below the note's balance that a buyer pays. If a note has 100,000 dollars left on it and the offer is 88,000 dollars, the 12,000 dollar difference is the discount. It reflects two things: the time value of money (cash now is worth more than payments spread over years) and risk (the chance the borrower stops paying or the collateral disappoints). A safer, cleaner, better-documented note carries a smaller discount and prices closer to par.

A fully documented loan where the borrower's ability to repay is clearly there, and it all shows up on paper. That means a properly signed note and recorded deed of trust, a real down payment and equity, a strong on-time payment history you can prove, current taxes and insurance, and ideally a professional servicer's records rather than a shoebox. When I can see that the borrower can pay and has been paying, my risk drops and I can pay closer to full price.

I buy first-lien, owner-financed notes on Texas property, performing and non-performing, plus partials, contracts for deed, and land contracts. I will look at houses, land, and other property types. Most importantly, I buy the messy ones a lot of buyers pass on: behind borrowers, missing pieces, unusual situations. If you are not sure yours qualifies, just ask. The worst answer you get is a no, and it costs nothing to find out.

The opposite of a clean file. Thin or missing documentation, no proof of payments, little or no borrower equity, a spotty or nonexistent payment history, unpaid property taxes or lapsed insurance, a second-lien position, or unusual collateral all add risk and pull the price down. None of these automatically kills a deal, but each one is a reason for a bigger discount. Fixing what you can before selling, especially the paperwork, helps your number.

A pay history is the record of the borrower's payments on the note: when each payment was due, when it actually came in, and how much. It is the single best evidence of whether the borrower is reliable, so it is one of the first things I look at. A clean, well-kept pay history, especially one from a third-party servicer, can raise your offer. A vague or missing one lowers it.

A good pay history shows the borrower paying in full and on time, month after month, for a meaningful stretch, ideally 12 to 24 months or more, with no long gaps. It is even better if those payments are documented by a licensed servicer or clear bank records rather than handwritten notes. A good, seasoned pay history is one of the strongest things that pushes an offer toward par, because it proves the income stream is real.

A bad pay history shows late payments, missed months, partial payments, or long gaps, or a note so new there is barely any history at all. It can also mean a history you cannot actually prove because it was never documented. A weak pay history does not mean I will not buy the note. It just means more risk and a bigger discount. Sometimes the fix is simply getting the borrower back on track and seasoning the note a while before selling.

A servicer is who handles the loan's day-to-day paperwork: collecting the payment, tracking the balance, managing escrow for taxes and insurance, sending statements, and issuing year-end tax forms. A third-party servicer is a licensed company you hire to do all of that instead of doing it yourself. Their records are trusted because they are independent and professional, which is exactly what a note buyer wants to see.

Not automatically, but it can be. Self-servicing means you collect the payments and keep the records yourself. The risk for a buyer is that homemade records are harder to trust and sometimes incomplete, and self-servicing can raise compliance questions on residential loans. If your records are clean, organized, and complete, self-servicing is usually fine. If they are thin, moving the note to a licensed third-party servicer for a while before selling can strengthen your pay history and your price. Either way, send me what you have and I will tell you where you stand.

Because the property is what stands behind the note. If the borrower ever stops paying, the value of that property is what protects the money. A note on a property worth well more than the balance is much safer than one where the loan is close to or above the property's value, so property value directly affects how much I can pay. It is also why I get a current value opinion during due diligence rather than relying on an old sale price.

A deed of trust is the security document that pledges the property as collateral for the note. In Texas it uses three parties: the borrower, the lender or note holder, and a neutral trustee who can sell the property if the borrower defaults. It is what makes the note enforceable against the property, and it is why a Texas note holder can foreclose without going to court. When I buy a note, the deed of trust gets assigned to me along with the note.

A warranty deed is the document that actually transfers ownership of the property from a seller to a buyer, and guarantees clear title. A deed of trust is not a transfer of ownership at all. It is the lien that secures the loan. In an owner-financed sale, the seller typically gives the buyer a warranty deed (so the buyer owns the home) while the buyer signs a note and a deed of trust back to the seller (so the seller has a lien until the loan is paid). Do not confuse the two: the warranty deed conveys the home, the deed of trust secures the debt.

LTV stands for loan-to-value. It is the amount owed on the note divided by the property's current value. If the borrower owes 75,000 dollars on a home worth 100,000 dollars, the LTV is 75 percent. A lower LTV means the borrower has more equity and the property gives more cushion, which makes the note safer and worth more. A high LTV, where the loan is close to the property's value, adds risk and lowers the price.

A mortgage note (also called a promissory note) is the loan contract itself: the borrower's signed, written promise to repay a set amount on set terms, including the interest rate, payment amount, schedule, and what happens if they stop paying. If you sold a property and let the buyer pay you over time, the note is the paper that entitles you to those monthly payments. In plain terms, it is the IOU, and it is the thing I actually buy.

They are two documents that work together. The note creates the debt, the borrower's promise to pay. The deed of trust (or mortgage) is the security instrument that pledges the property as collateral and gives the holder the right to foreclose if the note is not paid. The note is the promise; the deed of trust is the leverage behind it. In Texas, the security instrument is almost always a deed of trust rather than a mortgage.

Owner financing (also called seller financing) is when the seller of a property acts as the bank. Instead of the buyer getting a loan from a mortgage company, they pay the seller directly over time under a promissory note secured by the property. If you did that, you became the lender, and the note plus its deed of trust is what you hold. That paper is exactly what you can sell for a lump sum of cash.

Selling your note means transferring your right to receive the remaining payments to a buyer in exchange for cash today. Two things happen: the note is endorsed (signed over) to transfer the debt, and the deed of trust is assigned (a recorded document) to transfer the lien and foreclosure rights. The borrower's terms do not change at all. They simply send their same payment to a new owner.

A performing note is one where the borrower is paying on time as agreed. These are worth the most because the income is predictable. A non-performing note is one where the borrower has stopped paying or is seriously behind (often 90 days or more), or has let taxes or insurance lapse. Those sell at a bigger discount because whoever buys them takes on the work of collection or foreclosure. A re-performing note is one that was behind but is being paid again, often after a modification.

Lien position is the order in which debts get paid if the property is sold or foreclosed. A first lien is paid first and is the safest, so it brings the best price. A second (or junior) lien sits behind the first and only gets paid after the first is satisfied, so it carries more risk and sells at a deeper discount. If the first lienholder forecloses, a junior lien can be wiped out. That is the main risk of second-position paper.

A partial is when I buy only a portion of your remaining payments instead of the whole note. For example, on a note with 120 payments left, I might buy the next 48. After I collect those, the note reverts to you and you keep the remaining 72. A partial lets you get cash now while keeping a future interest in the note, and because you are selling less, the total discount is usually smaller than selling everything.

With a note and deed of trust, the buyer gets title at closing and you hold a lien on the property. With a contract for deed (also called a land contract or bond for deed), the seller keeps title until the buyer finishes paying, and the buyer only gets the deed at the end. Texas heavily regulates contracts for deed to protect buyers, which is why many Texas sellers now use a deed with a vendor's lien and a deed of trust instead. Both can be sold, but a true recorded note and deed of trust is usually easier to sell and prices better.

A mortgage company and a hard money lender both make new loans to borrowers. A note buyer does not make loans at all. I buy existing notes that someone else already created, usually seller-financed paper, and pay the current holder a lump sum for the remaining payments. In short, lenders create debt; I purchase debt that already exists.

Usually to turn a slow trickle of monthly payments into one lump sum of cash today. Common reasons include needing money for a big expense, an investment, medical bills, or taxes, simplifying finances, settling a divorce or an estate, or just being done being a lender. Selling also hands off the risk and hassle. No more chasing payments, worrying about default, tracking taxes and insurance, or facing a possible foreclosure. That all becomes my job, not yours.

It is simpler than most people expect. First you tell me about the note, the basics of the loan and its payment history. I give you a no-obligation offer, usually fast. If you accept, you send copies of the documents and I do my due diligence: a property value check, a title and lien search, and verification of the payment history. Then we close through a title or escrow company, funds are wired to you, and I record the assignment and send the borrower a letter telling them where to send future payments.

For a straightforward, performing note, the process typically runs a few weeks from offer to funding, with due diligence taking about one to two weeks. Once we close, funds are usually wired right away. Things move slower if documents are missing or the title search turns up a problem like unpaid taxes or a competing lien. I will always give you a realistic timeline for your specific note.

You can do either. A full sale buys all the remaining payments for one lump sum. A partial buys only a set number of payments, after which the note reverts to you. People choose a partial when they want cash now but would rather keep some of the long-term income. Ask for both, and you can compare the numbers side by side.

To give an offer, I just need the basics of the loan and its payment history. To close, I will want the signed original note, the recorded deed of trust or mortgage, the closing or settlement statement, a payment history (ideally from a servicer or bank records), the title policy, proof of hazard insurance, and property tax records. Clean, complete paperwork supports a higher offer and a faster closing, because it removes uncertainty about what I am buying.

Due diligence is my verification process before I fund. It usually includes a title and lien search (to confirm you hold a valid lien in the stated position and there are no surprise liens or unpaid taxes), a property value opinion, and verification that the payments were really made on time. I am confirming that the collateral, the paperwork, and the payment record all support the offer I gave you.

My quotes are free and there is no obligation to see a number. Who covers the transaction costs, such as the property valuation, title work, and closing fees, varies from deal to deal, and we put it in writing before you close so there are no surprises. In most cases the discount is the main cost to you, and any offer I give already reflects how those costs are handled. You may also have separate costs of your own, such as tax on your gain, so it is smart to check with your CPA.

Nothing about their loan changes. Same balance, same interest rate, same monthly payment, same due date. The only difference is where they mail the payment. After closing, they get a written notice that the note was assigned, along with the new payment address. When servicing changes hands, federal rules also require the borrower to be notified, and payments they send to the old servicer during the transition cannot be treated as late.

I still want to talk. Non-performing and slow-paying notes are exactly the kind other buyers avoid and I am set up to handle. The price reflects the added risk, but strong records that show the loan was managed properly and that proper notices were sent will help. You get to walk away from a problem loan instead of managing a workout or a foreclosure yourself.

Yes. An initial offer is a no-obligation estimate. You are not committed until you sign the purchase and assignment documents at closing. It is perfectly reasonable to get more than one quote and to ask that every term be put in writing. The offer can change only if due diligence turns up something different from what was described, like a lien or a weaker payment record.

Because a dollar paid to you slowly over many years is worth less than a dollar in your hand today. This is called the time value of money. I am paying cash now for payments that arrive over months or years, so I calculate what that future stream is worth today at a fair rate of return. The gap between the balance and my offer is the discount, and it also covers real risk: the borrower could stop paying, the property could lose value, and foreclosure is slow and costly. The discount is math and risk, not a lowball.

The main drivers are the note's interest rate, the payment history and seasoning (how long the borrower has paid on time), and how much equity the borrower has (a lower loan-to-value is safer). Also weighed: the remaining term, the borrower's credit and down payment, the property type, condition, and location, the lien position, and the quality of the documentation. A well-seasoned, performing first-lien note on an owner-occupied home prices closest to its balance. Higher-risk situations are discounted more.

Seasoning is how long the note has existed and been paid on. A note with 12 to 24 or more months of on-time payments proves the borrower is reliable, which lowers my risk and raises the price. A brand new note with little history is riskier and usually brings a lower offer. I am really buying the likelihood of future payments, and the borrower's track record is the best evidence of that.

Loan-to-value, or LTV, is the amount owed divided by the property's value. If a borrower owes 80,000 dollars on a 100,000 dollar home, that is 80 percent LTV. The more equity the borrower has (a lower LTV), the more they have to lose by walking away, and the more the property protects me if things go wrong. That is why notes with a solid down payment and real equity are worth more.

Yes, but those features affect the price. A near-term balloon can be a concern because it forces a payoff or refinance soon, so showing a realistic payoff path helps. A below-market interest rate means a deeper discount, because I have to reach a fair return with a smaller coupon. Neither one stops a sale. They just move the number.

Often yes. Notes on vacant land, mobile or manufactured homes, and commercial or multifamily property can all be sold, not just houses. That said, collateral type affects pricing and appetite. Owner-occupied single-family homes are the most liquid and price best, while raw land, mobile homes, and specialized property are viewed as higher risk and discounted more. Describe your collateral up front and I can give you an accurate number.

Often yes, but missing documents make it harder and can affect the price or whether a sale is even possible. Some gaps can be fixed, since recorded documents can be pulled from the county and a lost-note affidavit can sometimes stand in for a missing original. Core items like an enforceable, properly signed note are hard to work around. Send me what you have and I will tell you what is missing and whether it can be cured.

Texas overwhelmingly uses the deed of trust. It is a three-party instrument: the borrower, the lender or note holder, and a neutral trustee who holds the power of sale. That structure is what lets a Texas note holder foreclose without going to court. When you buy or sell a Texas note, you are dealing with the note plus the lien rights under the deed of trust.

Texas is mainly a non-judicial foreclosure state. Most deeds of trust contain a power-of-sale clause that lets a trustee sell the property at public auction without a lawsuit, under Texas Property Code section 51.002. In broad strokes, the borrower must first get a written notice of default with at least 20 days to cure, then a notice of sale mailed at least 21 days before the sale. Foreclosure sales are held on the first Tuesday of the month between 10 a.m. and 4 p.m. at the county courthouse. Some loans, such as home-equity loans, require a court order instead. This is general information, so confirm the details for your loan with a Texas attorney.

Texas has some of the strongest homestead protections in the country, rooted in the Texas Constitution. A homestead is generally protected from forced sale for most debts, and foreclosure is only allowed for a limited list of debts. The good news for note holders is that a purchase-money loan, the loan used to buy the home, is on that list, and most owner-financed notes are purchase-money liens. But the homestead rules impose strict requirements, and a defective lien can be unenforceable, so it is worth having a Texas attorney confirm any homestead-secured note is valid.

Yes. Texas usury law caps interest rates, and the exact ceiling depends on the type of transaction. There is a low default rate when no rate is stated, a 10 percent constitutional baseline, and higher ceilings authorized by the Texas Finance Code for certain transactions. Charging an unlawful rate carries serious penalties, including possible forfeiture of interest. Because the correct ceiling is fact-specific, confirm your rate with a Texas attorney before setting terms.

Possibly, if it is a residential home. Under the Texas SAFE Act, someone who originates residential mortgage loans generally must be a licensed Residential Mortgage Loan Originator. There is a narrow exemption for an owner who makes no more than three such loans in any 12-month period to buyers of that owner's property. Many sellers who go beyond that use a licensed originator to prepare the loan. Federal Dodd-Frank rules add ability-to-repay requirements for owner-occupied homes, with limited exemptions. This area is technical, so get it reviewed by a Texas attorney.

Generally, the licensing rules focus on originating a new loan, meaning taking an application and offering loan terms, not on buying a note that already exists. An investor who buys a seasoned, already-originated note is usually not originating a loan. That said, activities like servicing loans or a pattern of buying to re-originate can trigger separate rules, and contracts for deed are treated differently. It is a gray area worth confirming with the Texas regulators or an attorney for a specific business model.

A wraparound, or wrap, is seller financing where the seller keeps an existing loan in place and wraps a new, larger note around it. The buyer pays the seller, and the seller keeps paying the underlying loan. Wraps are legal in Texas but come with real risk, mainly the due-on-sale clause on the underlying loan. Texas law (Finance Code Chapter 159, effective 2022) now requires the wrap seller to give the buyer a written disclosure before closing. Wraps are legally intricate and should be documented by a Texas attorney.

The assignment of the deed of trust is recorded with the county clerk in the county where the property sits. Recording is what puts the new owner in the public chain of title, protects lien priority, and supports the right to foreclose later if it ever comes to that. When I buy a note, I record the assignment promptly and keep the original endorsed note.

Texas has no state income tax and funds local government largely through property taxes, which are relatively high and are a priority lien on the property. Unpaid property taxes can jump ahead of a deed-of-trust lien and, in a tax foreclosure, could wipe out the note holder's security. That is why note holders often escrow for taxes and insurance or at least keep a close eye that they stay current. Confirming tax and insurance status is a standard part of my due diligence.

Selling a note is generally a taxable event, and the details depend on how you created the note. In many cases you have a capital gain or loss based on what you receive versus your remaining basis in the note. If you created the note by carrying financing on a property sale (an installment sale), selling the note can accelerate the remaining deferred gain into the year you sell. Interest you collected along the way was ordinary income. Because the outcome is very fact-specific, talk to your CPA before you sell. This is general information, not tax advice.

There is no single 1099 that automatically gets issued for the sale itself. You and your CPA report the sale on your return, often as a capital transaction and using Form 6252 if an installment sale is involved. The 1099 forms people ask about usually relate to interest income, not the sale. While you owned the note, interest you received was reportable, and after the sale the new owner or their servicer handles interest reporting going forward.

Servicing is the day-to-day administration of the loan: collecting payments, tracking the balance, managing escrow, sending statements, and issuing year-end tax forms. After you sell, servicing becomes my responsibility, and I typically place the loan with a licensed servicer rather than collecting payments myself. Your borrower keeps paying the same amount under the same terms. Servicing simply stops being your job.

A due-on-sale clause lets a lender demand full payoff if the property is sold or transferred. The federal Garn-St Germain Act generally validates these clauses but carves out exceptions where they cannot be enforced, such as transfers to a spouse or children, transfers in a divorce, or transfers into a living trust. Important point: this clause attaches to a transfer of the property by the borrower. It is not triggered when you sell the note itself. Selling your note to me does not call your borrower's loan due.

An escrow, or impound, account is where the servicer collects a little extra each month to pay the property tax and insurance bills when they come due. It protects the loan by making sure taxes and insurance never lapse, since either problem can threaten the collateral. Not every private note has escrow. Many seller-financed notes leave the borrower to pay those directly, which is one thing I check during due diligence. If a note has escrow, it transfers with the sale.

When I buy your note, I step into your shoes and take on the real risks: the borrower could default, the property could be worth less than expected or need work, the title or lien could have a defect, or the paperwork could be incomplete. Because future payments are worth less than cash and some may never arrive, I pay less than the balance, and that discount is my compensation for time and risk. Due diligence is how I measure those risks and set a fair price instead of guessing.

A we-buy-houses company buys the physical property from the owner, usually to fix, rent, or resell it. I buy the paper, the loan and its future payments, from the person who is owed the money. If you sold a property and carried the financing, you are the bank, and that is what I buy. Your borrower keeps their home and simply pays a new owner. They buy the house from the owner; I buy the debt from the lender.

Selling is a one-time deal. You transfer the note, get a lump sum, and you are done, with no monthly obligation and no more collection risk. Borrowing against your note (sometimes called hypothecation) keeps you as the owner. You pledge the note as collateral, get loan proceeds, and repay that loan with interest over time while still relying on your borrower's payments. Selling gives you a clean exit and offloads risk but ends the income stream. Borrowing keeps the asset but leaves you owing money and still exposed if the borrower stops paying.

Yes. I treat your information, your borrower's information, and the loan terms as confidential, and I use them only to evaluate and close a potential purchase. Sensitive details are shared only with the parties who need them, such as a title company or servicer. If confidentiality is a concern, it is completely reasonable to ask for that in writing before you send documents.

NoteGuy is me, Craig Kautsch, a licensed Texas mortgage professional who has been in the note business since 2007. I buy owner-financed mortgage notes for cash, working directly with note holders across Texas. You deal with a real person who actually buys the note and handles the details, not a call center passing you around.

Owner-financed notes on Texas property, performing and non-performing, plus partials, contracts for deed, and land contracts. I buy the messy ones a lot of buyers will not touch. If you are not sure whether your note qualifies, the fastest thing to do is just ask.

Usually within about 24 hours once I have the basic details of your note. You can start with the short form or simply text me a photo of your note, and I will follow up. There is no cost and no obligation to see a number.

Two easy ways. Fill out the quick form to get your cash offer, or text a photo of your note to 817-730-4271 and I will take it from there. Tell me the basics of the loan and its payment history and I will get you a fair offer, usually within 24 hours.