There are all sorts of ways to buy and sell a mortgage note. Common questions that note sellers ask me are what is a “partial” and how does it work. A partial is simply when a mortgage note buyer like myself offers to buy part of a note.  Instead of buying the entire note, the mortgage buyer purchases just some of the payments or the payments and part of the balloon. 

Why would anyone want to do a partial?

A Partial Purchase Note allows the note seller/note holder of an existing cash flow instrument (seller carry-back note, structured settlement, etc.) to sell a portion of the rights to collect future payments to a third-party buyer for a lump sum of cash.

This means that the seller can avoid the steeper discount associated with a full purchase buy-out on the secondary mortgage market.

This occurs by assigning a portion of your remaining payments for a smaller lump sum amount, ensuring you with future income down the road of life’s twists and turns.

It’s always a safer bet…

For example: Let’s say you have a seller-financed mortgage note with a total unpaid balance of $64,554 at 6% interest payable in monthly installments of $318 with 203 months or 16.9 years remaining. If the seller were to sell 203 monthly payments of $318, this would be considered a full purchase buy-out.

But, if the seller/holder only sells 120 payments at $318 per payment to a buyer, that would be considered a straight partial purchase. This means on the 121 payment, that loan would revert back to the original seller/holder who could either hold the rest of the payments to maturity or assign some more payments to a buyer for cash. This option always gives the seller more money over the long run. This is due to the sharing of the risk factors between the seller and the buyer.

A partial purchase can also involve splitting the monthly payments received from the buyer between the investor and the seller, also known as a split partial. Using the same example of 203 payments of $318 each, an investor might concur to acquire $209 of each remaining payment leaving a remaining residual of $109 to the seller for the next 203 months. This is called a split-partial purchase.

The terms of a partial purchase are spelled out in the Partial Purchase Agreement. This important document outlines the servicing arrangement along with what happens in the event of an early payoff or default by the buyer. Consult with legal counsel to ensure the protection of all parties’ rights involved in the transaction within the agreement.

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