If you sold a home, land, or other property using owner financing, there’s a good chance you know the person making the payments.
Maybe you wanted to help them purchase a home. Maybe owner financing simply made sense for both of you. Either way, you’ve been receiving their payments, and you may feel a responsibility to make sure selling your mortgage note doesn’t create a problem for them.
That leads to an important question.
What happens to my buyer if I sell my owner-financed mortgage note?
The good news is that selling your mortgage note generally changes who receives the payments, not the agreement your buyer originally made.
QUICK ANSWER
What Happens to the Buyer When I Sell My Mortgage Note?
When you sell an owner-financed mortgage note, ownership of the note is transferred to the new note holder. The buyer continues making payments according to the terms of the existing agreement, but the payments are directed to the new note holder or payment servicer.
The sale of the note does not give the note buyer the ability to simply rewrite the original agreement. Your property buyer still has the rights and responsibilities established by the original loan documents and applicable law.
Does My Buyer’s Monthly Payment Change?
No, selling your mortgage note does not mean the new note holder gets to create a new loan.
The original note establishes important terms such as:
- Principal balance
- Interest rate
- Monthly payment
- Payment schedule
- Maturity date
- Balloon payment, if applicable
- Other terms contained in the agreement
The new note holder purchases the existing payment stream and receives the payments that would otherwise have been paid to you.
For example, if your buyer is required under the note to make a $1,000 monthly payment, selling the note does not suddenly allow the new note holder to increase that payment simply because ownership of the note changed.
Does My Buyer’s Interest Rate Change?
No, the interest rate is established in the original mortgage note or other financing documents. Transferring ownership of the note does not, by itself, create a new interest rate.
The buyer continues paying according to the terms of the existing agreement.
Will My Buyer Suddenly Have to Pay Off the Entire Mortgage?
Selling your mortgage note does not, by itself, make the entire balance immediately due.
If the original agreement calls for monthly payments for a specified number of years, those payment terms continue after the note is transferred.
If the note already contains a balloon payment or another provision requiring the balance to be paid at a certain time, that existing requirement remains part of the agreement.
Who Does My Buyer Pay After I Sell the Note?
This is one of the primary things that does change.
Before the sale, your buyer may be sending payments directly to you or to a servicing company on your behalf.
After the mortgage note is sold, the buyer will receive instructions explaining where future payments should be sent.
Depending on how the note is serviced, those payments may go to the new note holder or to a professional payment servicing company.
The important thing is making the transition clear so your buyer knows exactly where future payments should go.
Do I Need My Buyer’s Permission to Sell My Mortgage Note?
Since we started in 1989, we’ve seen maybe two or three notes saying the note cannot be transferred without the payer’s permission, but it is extremely rare.