Sample Sale of Note Transaction and Note Holder Options

Below is an example of an existing note and some of the different options a note holder could choose. Of course, each note's value will vary depending upon property type, terms and payor information. Each transaction is different and will be individually assessed to provide you the highest possible price and all of the best possible options.

Example Of $90,000 Note Sale
(Seller is currently receiving payments)

Sale Price = $95,000

Down Payment = $ 5,000

1^st Mortgage = $90,000 = Face Value of the Note

Current Balance $84,257 after 24 payments made

Loan To Value = $84,257/$95,000 = 89%

Monthly payment = $967.14

· 10% Interest Rate

· 15 Year Term (180 Payments)

Some Options Available To The Note Holder

(Full details below examples)

1. DO NOTHING: Note Holder continues to receive the remaining 156 monthly payments of $967.14.

2. FULL SALE: Note Holder sells the entire note now and receives $66,229.43 CASH NOW which is the current value of the balance adjusted for time, minus the fee.

 3. PARTIAL SALE--FRONT END PAYMENTS: Note Holder sells the next 5 years of payments (60 payments) and, after 5 years, begins to receive, again, the last 96 payments. So, the Note Holder receives $40,653.34 CASH NOW plus $63.736.86 Loan Balance in monthly payments during the next 5 years = $104,390.20 Total.

4. FULL SALE--SPLIT FUNDING: Note Holder sells 1/2 of the balance of the note (the next 78 payments) now and then, after 78 months, sells the other 1/2 of the note (the last 78 payments). So, the Note Holder receives $48,010.47 CASH NOW plus $48.010.47 CASH in 78 months = $96,020.94 Total.

 5. PARTIAL SALE--1/2 OF EACH PAYMENT. Note Holder sells ½ of each monthly payment and continues to receive the other half. So, the NOTE HOLDER receives $33,114.72 CASH NOW (current value of the balance adjusted for time) plus $483.57 Per Month for 156 Months.

SEE BELOW FOR FURTHER EXPLANATION ON EACH OF THESE SALES.

Be aware that many other options are available. RushMore Resources can customize a transaction just for you and the options will be designed specifically for your cash needs. Contact us now to find out what we can do for you or proceed to a simple form.

Detailed Explanation of Above Options

Full Sale

When the entire note is sold, it is always sold at a "discount" off the current principal balance of the note. The reason for this is that the face interest rate of the note is seldom as high as the market yield required in the secondary mortgage money market. In the example, the discount is $18,027.90 ($84,257.33 minus $66,229.43) assuming the secondary mortgage money market yield is 15%. The discount could be more or less depending on the current yield requirements in the secondary mortgage money market.

Partial Sale—Front End Payments

Partial sales are very attractive from the point of view of a note holder because the note holder does not have to take a big discount. The main reason for the discount being so large ($18,027.90 in the Full Sale example) is that the payments due in the distant future are worth much less in today's dollars than the payments that are due soon.

In a full sale, the note holder is selling all the payments, and not getting much for the ones at the end of the 15 year term—thus the large discount. In a partial sale where the front-end or near term payments are sold, most of the payment is interest. This means that the note holder gets a sizable amount of cash now ($40,653.34 in the Partial Sale example) and when the note holder gets the note back after 60 payments, the balance of the note is still fairly high ($63,736.86 in the example). The note holder then gets the remaining 96 payments of $967.14.

A partial sale of the front-end payments is like having your cake and eating it, too. You get a sizable chunk of cash now, and when you get the note back, it has a high remaining principal balance and lots of payments left to collect.

In this example, the cash the note holder receives now plus the remaining loan balance the note holder receives in 5 years is more than $20,000 higher than the current principal balance of the note. In many cases, note holders prefer this type of an arrangement rather than selling the entire note for a large discount off the current principal balance.

Full Sale--Split Funding

In the split funded sale, the note holder is selling all of the payments but is only selling part of the payments now and part of the payments in the future. This type of sale is really a hybrid between a full sale and a partial sale.

In this example, 1/2 of the note (the next 78 payments) is sold now and the other 1/2 of the note (the last 78 payments) is sold after the first 78 payments are paid. $48,010.47 is paid in cash now and an equal amount in 6 ½ years.

This is only one variation of a split funded sale. The note could be split into three, four or more equal or unequal parts.

Partial Sale—1/2 Of Each Monthly Payment

In this type of a sale, the note holder sells 1/2 of each monthly payment and continues to receive the other half. This is a particularly attractive way to sell a note if you need some cash now but also want to keep part of the monthly cash flow. The example shows that one half of each of the 156 remaining payments can be sold for $33,114.72 and $483.57 keeps coming in every month.

Again, these are just some of the choices available to a Note Holder when considering the sale of all or part of their Real Estate Secured Note.  RushMore Resources can design a transaction to meet the specific needs of the Note Holder. Don't wait any longer to discover the many options we can offer you. Send an email or fill out the simple form to get started.