What Exactly is a Real Estate Note?
A real estate note is a debt instrument also known as a promissory note. It is an obligation to pay backed by real estate as collateral.
A Mortgage or Deed of Trust is recorded to secure the lien against the property. A Real Estate Contract or Contract for Deed may also be used as an alternative financing method.
Why Own the Note Instead of the Property?
Owning property for investment comes with the headaches of being a landlord. When you own the note, you become the bank leaving the responsibility for taxes, insurance, and the 3 T’s (tenants, toilets, and trash) to the property owner.
Can These Notes Be Purchased in a Retirement Account?
Absolutely! Flexibility is one of the great advantages of this investment. Notes can be bought inside or outside of a retirement account.
In fact, a vast majority of private investors take advantage of the tax savings offered through a Self-directed IRA, ROTH, Solo 401k, or SIMPLE plan. The purchase is coordinated through your account administrator using their Direction of Investment (DOI) form and process.
How Do I Take Ownership of a Note?
The terms of the purchase are spelled out in the Purchase and Sale Agreement (PSA). Once the service transfer has taken place, the Promissory Note is endorsed to the investor (also referred to as an allonge). An Assignment of the Mortgage or Deed of Trust is also executed that ties your entities ownership to that loan/property, and then recorded at the county courthouse.
What Types of Notes are Listed for Sale?
- 1st position loans
- Seller financed notes (including Contracts For Deed)
- Performing notes
- Non-performing notes (NPN or NPLs)
I Have Heard the Terms “Performing” and “Non-Performing” Note, What is the Difference?
Performance refers to how well the payor has been at keeping payments current on the note. Assets are divided into three main categories for search purposes as follows:
- Performing Notes – payments are either current or less than 120 days delinquent.
- Non-Performing – payments are delinquent by 120 days or more.
- REO – the property was already foreclosed for non-payment and is now Real Estate Owned (REO). The property, not the note, is being sold.
Do I Have to Have a Servicing Company When I Buy a Note?
Yes, we use best practices when it comes to servicing notes. This assures a smooth transfer of payments and compliance with any applicable loan servicing requirements. You will be asked to indicate your preferred servicing provider for collecting payments when placing an offer.
Will I Be Able to Personally Review All the Documents?
Absolutely! We are big believers in thorough due diligence and help streamline the process by providing access to the existing collateral file via CSV and PDF downloads. The collateral file differs by asset type but will generally include:
- Note Information (dates, repayment terms, etc.)
- Property Information (address, type, description)
- Servicing Information
- Payment History
- Document Copies (Note, Mtg/DT/Contract, Assignments, Closing Statement, Endorsements/Allonges, Modifications, etc.)
How Long Will I Have to Close?
Once a purchase order is accepted, the buyer is required to close within 10 calendar days. During this time you will need to complete any final due diligence, execute the Purchase and Sale Agreement (PSA), and send funds to closing.
How Do I Become an EFF Trade Member?
In order to be an active member of EFF’s Trade Desk, an individual must submit an Investor’s application and sign an NDA disclosure.
How Do I Place An Offer?
Offers can be placed directly through the “Make an Offer” link on the right side of the note details. Your offer will be sent directly to our Trade Desk. One of our Trade Desk members will reach out to answer any questions you may have.
Is There a Fee to Purchase a Loan?
There is no fee or commission you will have to pay when buying directly from us. Our asking price is the amount we wish to sell the loan for with no fees or commissions built in. The only additional fees you will pay are the recording and transfer taxes (if any).
Can I Cancel an Offer After I’ve Placed It?
You may cancel your offer at any point prior to your due diligence being complete. Once you’ve identified your due diligence is complete, and submit an offer, we would expect you to honor the offer.
What Happens After My Offer is Accepted?
We move forward to drafting up the Purchase Sales Agreement (PSA), and we schedule the date of funding and service transfer.
How Do I Send the Money When I Buy a Note?
Via a wire transfer or ACH Payment.