Convert Your Real Estate Note Payments Into Cash

So you sold your property and took a real estate secured Note as payment. You collected some payments from your borrower. But now you need a lump sum of cash for something else. There are multiple ways to go about it. Your 2 most common options are:

Sell the entire Note outright (all payments) for a lump sum.
Sell a partial set of payments.
You get a smaller lump sum of cash now but forego certain number of forthcoming payments (for example, 36 or 60 months) that will be collected by a Note buyer. After the Note buyer finished collecting his share of payments, you will still collect all the remaining payments. Sort of like "have your cake and eat it too".

Conforming Notes

Not all notes are created equal. Banks and conventional mortgage lenders go through a fairly extensive paperwork, property checks and borrower checks before they hand their money over to a title company to fund a loan. This is done to insure compliance with certain "conforming mortgage" guidelines.
Conforming mortgage Notes are traded at face value between various institutional investors like banks, Fannie Mae & Freddie Mac.
In other words, a performing conforming mortgage Note is pretty much the same as cash. It can be easily converted into cash (barring any economic disasters like The Great Recession of 2008.)

Is Your Note Sellable?

Very few property owners who sell with owner financing go through a funding process that is anywhere near as complete as one above for conforming mortgages. In truth, the origination process doesn't have to be that complete.
However, to be sellable (or marketable) the Note has to at least conform to certain minimum requirements. This makes its purchase a less risky endeavor for a Note buyer.
These requirements include:

Note is legally enforceable (Note and Deed of Trust documents are prepared by competent real estate attorney with proper disclosures to Buyer/borrower)
Note is properly secured (immediately after closing a lien against the property is recorded as Deed of Trust in the county records where property is located)
Lien priority is insured (Lender's title policy must show your lien in a right, usually senior, position with no other liens recorded prior to it. If it's a "wrap" note it has to be made clear through loan documents and title policy.)
Note has a legitimate property as collateral (ideally a property with a valid legal description approved by county/city, a part of a recorded county subdivision with a plat map.)
Collateral is protected (buyer must have an active hazard policy insuring the improvements up to the market value of improvements as well as flood insurance, if the property is in a flood zone)
Note origination process complied with various mandatory disclosures and consumer protection laws for mortgage financing such as SAFE Act, Dodd-Frank Act, Respa Disclosures, etc.
Closing of the mortgage handled by a title company or a real estate attorney's office licensed by State to close such transactions.
You must have a copy of a HUD settlement statement showing the price paid by buyer for the property, cash down payment and all other customary items on the HUD, including tax certificates showing property taxes paid & current at closing.
You must have legitimate records documenting payments from buyer and corresponding deposits into your bank account (not just an Excel file with a list of payments you received.)

Some of the missing items on the list above can be fixed post-closing. Other helpful documents, though not mandatory, will enhance your Note package: an appraisal of the property establishing its value, a survey, deed restrictions, HOA documents (if the property is subject to an HOA), a servicing agreement with a 3rd party servicer who handles collection of payments from your borrower and keeps records, etc.

Unsellable Notes

If your Note doesn't at least address these basic points, what you likely have is "bad merchandise".
With poor loan closing process and incomplete documentation:

Your Note is going to be difficult to enforce
Foreclosure in case of non-payment by borrower can be problematic
You may be subject to litigation from buyer for violations of regulations above
You may be a subject of legal action from regulatory agencies
Your collateral may not have any value or may be un-sellable if you have to go through foreclosure, etc.

All that, in turn, means your Note is probably unsellable. You may be stuck collecting payments on it for as long as Buyer is paying. Sometimes a high risk-taking Note buyer may purchase your Note, but will likely pay a heavily discounted price for it.

Factors Affecting Sellability of the Note

The more complete package you have, the more marketable and desirable your Note will be. Other factors affecting the value and desirability of your Note are:

Loan-to-value, or LTV: the lower the safer (70% of value is pretty good, 60% or less - very safe)
Interest rate: the higher the better (as long as it's not usurous)
Payment amount: the higher the better (as long as borrower can afford to make it; this is usually established during a qualifying process prior to selling the property with owner financing)
Amortization term: the shorter the repayment term the better (money returns back with interest sooner; but not too short as to earn at least some minimum amount of interest)
Presence of a balloon payment: balloon that is too close with a high LTV Note could be risky (if borrower can't sell or refinance the property)
Location and desirability of the collateral property: important in foreclosure and repossession of the property (bad property or poorly located property may be hard to resell to recover the funds)

Got A Note With Payments You'd Like To Cash Out (Full or Part)?