Real estate note holders know that their performing notes are income producing assets; however, they may not realize that they could leverage the value of their notes and the income they produce to borrow money and invest in other investment opportunities.
Pledging a note or mortgage as collateral for a loan is called hypothecation. According to investopedia.com the definition of “Hypothecation” is:
“When a person pledges a mortgage as collateral for a loan, it refers to the right that a banker has to liquidate goods if you fail to service a loan.”1
They go on to explain that “You are said to “hypothecate” the mortgage when you pledge it as collateral for a loan.”2
If a note owner in need of some cash for an investment opportunity does not want to sell his or her note in order to raise the needed capital for that opportunity he now has another option.
He could find a lender who will accept the note(s) as collateral for a new loan. This may be a better option than having to qualify for a new loan especially if the investment is something like land development, a loan to construct homes or commercial real estate, or buying an existing business. These types of loans are much harder to qualify for and obtain in the current business climate.
Not all lenders will accept this type of collateral so a note owner in need of this type of loan will need to be prepared to shop around for the correct lender.
A note(s) will obviously have to be performing, meaning that the borrower has proven to be a good “on time” payer. Equally important is accurate and verifiable record keeping. If the notes are professionally serviced by a company like Investor Loan Services providing these records is easy.
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If you currently own a real estate note and are in need of immediate cash, we would like an opportunity to bid on and possibly BUY YOUR NOTE! With over 20 years experience in the private note industry, our experienced staff is available to provide you with a quick quote and help make it easy for you to get the most for your note. Visit us today at www.notebuyingusa.com or contact us at 1-877-399-1211. If you are considering offering owner financing when you sell your property, please click here to receive your free copy of “10 Critical Steps to Creating a Sellable Note”.
This information is intended to be used as a general guide. It is not intended to constitute legal advice and is not a substitute for the advice of an attorney. While every effort has been taken to present the information accurately, this document may not be infallible. No warranty is made that these materials are current, complete, accurate, or suitable for any particular purpose. You should seek advice from your attorney before proceeding with any real estate transaction.
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