How to Sell Mortgage Notes A Comprehensive Guide

How to sell mortgage notes begins a journey into a specialized corner of real estate and finance, a realm where assets are not bricks and mortar alone, but the very streams of income they generate. This exploration delves into the mechanics of turning these financial instruments into liquid capital, offering insights for those looking to navigate this intricate market. It’s about understanding the value, the process, and the strategic considerations that underpin successful transactions.

The essence of a mortgage note lies in its role as a debt instrument, representing the loan made to a borrower for property acquisition. Investors can acquire various types of these notes, each with distinct characteristics that define their potential for risk and reward. From performing notes that consistently generate payments to non-performing notes that present a more complex challenge, a thorough understanding of their components and associated risks is paramount for any seller aiming to optimize their outcome.

Understanding Mortgage Notes as Investments: How To Sell Mortgage Notes

Welcome, aspiring wealth builders, to a pivotal step in your journey toward financial independence. Today, we delve into the powerful world of mortgage notes, not as mere paper documents, but as tangible assets ripe for investment. This is where real estate and finance converge, offering a unique avenue for generating passive income and building substantial equity. Prepare to unlock a deeper understanding of how these instruments can become cornerstones of your investment portfolio.At its core, a mortgage note is a legally binding contract that Artikels the terms of a loan secured by real estate.

It’s the borrower’s promise to repay a specific amount of money over a set period, with interest, to the lender. In the realm of real estate financing, the mortgage note is the debt instrument, while the mortgage or deed of trust is the security instrument that allows the lender to foreclose if the borrower defaults. Understanding this fundamental relationship is crucial for anyone looking to leverage these assets for profit.

The Anatomy of a Mortgage Note

A mortgage note is more than just a piece of paper; it’s a detailed contract representing a financial obligation. To effectively invest, you must dissect its components and understand what makes each note unique. This knowledge empowers you to assess value, identify potential pitfalls, and ultimately, make informed decisions that align with your financial goals.The primary components of a mortgage note include:

• Principal Amount: The original sum of money borrowed.
• Interest Rate: The percentage charged on the principal, which dictates the return on your investment. This can be fixed or adjustable.
• Term: The duration of the loan, typically expressed in years or months.
• Payment Schedule: The frequency and amount of payments (e.g., monthly principal and interest payments).
• Late Fees and Penalties: Provisions for late payments, which can offer additional income streams or represent a risk if not managed.
• Maturity Date: The date by which the entire loan balance must be repaid.
• Recourse Clause: Defines whether the lender can pursue the borrower’s other assets if the collateral is insufficient to cover the debt.

Classifying Mortgage Notes for Investment

Not all mortgage notes are created equal, and understanding their classifications is paramount to selecting the right investment opportunities. The distinction between performing and non-performing notes significantly impacts risk, reward, and the strategies required for successful management. This knowledge allows you to tailor your approach to your investment appetite and expertise.The two primary categories of mortgage notes investors encounter are:

• Performing Notes: These are loans where the borrower is current on their payments and has a good payment history. Investing in performing notes offers a predictable stream of passive income, akin to receiving rent from a property without the direct management responsibilities. The returns are typically lower than non-performing notes, but the risk is also significantly reduced.
• Non-Performing Notes (NPNs): In these notes, the borrower has fallen behind on payments, often by 90 days or more. NPNs present a higher risk due to the borrower’s distress but also offer the potential for much higher returns. Investors in NPNs often acquire the note at a significant discount to its unpaid balance and then work with the borrower to find a resolution, which could involve loan modification, short sale, deed in lieu of foreclosure, or foreclosure.

Characteristics Defining Performing vs. Non-Performing Notes

The difference between a performing and a non-performing note is defined by the borrower’s adherence to the repayment terms. This adherence is a direct indicator of the risk and potential return associated with the note. Recognizing these defining characteristics is the first step in accurately valuing and strategizing for each type of investment.Key characteristics that distinguish performing from non-performing notes include:

• Payment Status: For performing notes, payments are made on time according to the agreed-upon schedule. For non-performing notes, payments are delinquent, typically by 90 days or more.
• Borrower’s Financial Health: While not always immediately apparent, a performing borrower generally demonstrates a stable financial situation. A non-performing borrower is often experiencing financial hardship, such as job loss, medical issues, or divorce, which has led to their inability to make payments.
• Loan-to-Value (LTV) Ratio: The LTV ratio, which compares the outstanding loan balance to the property’s current market value, is crucial for both types. For performing notes, a healthy LTV indicates a buffer against market fluctuations. For non-performing notes, a low LTV can be advantageous, providing more options for resolution if foreclosure becomes necessary.
• Property Condition: The physical condition of the underlying property is a significant factor, especially for non-performing notes. A well-maintained property is easier to sell or modify.

Navigating the Risks and Rewards of Mortgage Note Investing

Investing in mortgage notes offers a compelling blend of potential returns and inherent risks. Like any investment, success hinges on thorough due diligence, a clear understanding of the market, and a strategic approach to managing both the opportunities and the challenges. Embrace this knowledge, and you’ll be better equipped to harness the power of these assets.The potential rewards of investing in mortgage notes are substantial and can manifest in several ways:

• Passive Income Generation: Performing notes provide a consistent stream of interest payments, creating a reliable passive income source.
• Capital Appreciation: As borrowers pay down the principal, your investment in the note effectively grows. Furthermore, if you acquire a note at a discount, the difference between your purchase price and the note’s face value represents an immediate gain.
• Diversification: Mortgage notes offer a way to diversify your investment portfolio beyond traditional stocks and bonds, adding a tangible asset class.
• Higher Returns on Non-Performing Notes: While riskier, successfully resolving a non-performing note can yield significantly higher returns through discounts, fees, or equity gains from property acquisition.

However, it is imperative to acknowledge and understand the potential risks involved:

• Borrower Default: The most significant risk is that the borrower may continue to default, even after your intervention, leading to potential foreclosure costs and a prolonged resolution process.
• Market Fluctuations: Real estate values can decline, impacting the collateral value of the property, especially in non-performing note scenarios.
• Liquidity Risk: Selling a mortgage note can be more challenging than selling publicly traded securities, making them less liquid investments.
• Legal and Servicing Costs: Managing and resolving non-performing notes can involve significant legal fees, servicing costs, and the time investment required for negotiations and potential legal actions.
• Property Management Issues: If foreclosure is necessary, you may become responsible for property maintenance, repairs, and eventual sale, which can be time-consuming and costly.

“The greatest risk is not taking any risk… In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”Mark Zuckerberg. This applies directly to the calculated risks in mortgage note investing.

Valuing Mortgage Notes

Alright, champions of financial independence! We’ve delved into the exciting world of mortgage notes as investments, and now, we’re stepping into the crucial arena of valuation. This is where the magic truly happens, where raw potential transforms into tangible opportunity. Understanding how to accurately value a mortgage note is the bedrock of smart investing. It’s the compass that guides you through the market, ensuring you make decisions that fuel your growth and secure your future.Think of it this way: every mortgage note is a stream of future income.

Our mission is to understand the true worth of that stream, today. This isn’t about guesswork; it’s about applying proven methodologies, mastering the numbers, and gaining the confidence to act decisively. Let’s unlock the secrets to putting a price tag on these powerful assets.

Primary Methods for Determining Market Value

The market value of a mortgage note isn’t a single, static figure. It’s a dynamic outcome derived from a combination of analytical approaches, each shedding light on different facets of the note’s potential. The primary methods employed by astute investors focus on quantifying the future cash flows and factoring in the inherent risks associated with those payments.

The two cornerstone approaches are:

• Discounted Cash Flow (DCF) Analysis: This is the gold standard. It involves projecting all future principal and interest payments, then discounting them back to their present value using an appropriate discount rate. This rate reflects the time value of money and the risk involved.
• Comparable Sales Analysis: Similar to how real estate agents value properties, this method looks at recent sales of similar mortgage notes in the same market. While less precise for unique notes, it provides a valuable market reality check.

Discounted Cash Flow Calculation for Mortgage Notes

The Discounted Cash Flow (DCF) method is your most powerful tool for understanding the true present value of a mortgage note. It’s a systematic process that accounts for the time value of money – the principle that a dollar today is worth more than a dollar in the future. By projecting every single payment the note will generate and then applying a discount rate, we can arrive at a realistic valuation that reflects current market conditions and your investment objectives.

The core idea behind DCF is to:

• Project Future Cash Flows: This involves meticulously forecasting each principal and interest payment over the remaining life of the loan. Factors like amortization schedules, potential prepayments, and any servicing fees are all considered.
• Determine the Discount Rate: This is the critical component. The discount rate represents the required rate of return an investor expects for taking on the risk of holding the note. It incorporates the risk-free rate (like U.S. Treasury yields), a risk premium for the specific note (considering borrower creditworthiness, loan-to-value ratio, and property type), and an inflation premium.
• Calculate Present Value: Each future cash flow is then discounted back to its present value using the chosen discount rate. The sum of all these present values represents the estimated market value of the note.

Formulas and Examples for Calculating Present Value

To truly grasp the power of DCF, let’s get down to the nitty-gritty with the formulas and see them in action. This is where abstract concepts become concrete financial realities.The fundamental formula for calculating the present value (PV) of a single future cash flow is:

PV = FV / (1 + r)^n

Where:

• FV = Future Value (the amount of the payment)
• r = Discount Rate (expressed as a decimal)
• n = Number of periods until the payment is received

For a stream of equal payments, like those in an amortizing mortgage, we use the present value of an ordinary annuity formula:

PV = P

[1 – (1 + r)^-n] / r

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Where:

• P = Periodic Payment (principal and interest)
• r = Discount Rate per period
• n = Total number of periods

Example:Let’s say you’re looking at a mortgage note with the following characteristics:

• Remaining Term: 10 years (120 months)
• Monthly Payment (P&I): $1,000
• Your Required Rate of Return (Discount Rate): 8% per year (or 0.08/12 = 0.006667 per month)

Using the annuity formula:PV = $1,000

[1 – (1 + 0.006667)^-120] / 0.006667

PV = $1,000

[1 – (1.006667)^-120] / 0.006667

PV = $1,000 – [1 – 0.44998] / 0.006667PV = $1,000 – [0.55002] / 0.006667PV = $1,000 – 82.504PV = $82,504This means that, at an 8% annual discount rate, the present value of receiving $1,000 per month for the next 10 years is approximately $82,504.

Comparing Valuation Approaches for Varying Risk Profiles

Not all mortgage notes are created equal. Their risk profiles can vary dramatically, and our valuation methods must adapt accordingly. A higher-risk note demands a higher discount rate, which, in turn, lowers its present value. Conversely, a very secure note might command a lower discount rate, resulting in a higher present value.

Let’s explore how different risk profiles influence valuation:

• Low-Risk Notes (e.g., performing notes with prime borrowers, low LTV, strong collateral): For these notes, the discount rate will be closer to the risk-free rate plus a small premium. The DCF analysis will yield a higher present value, reflecting the perceived certainty of receiving payments. Comparable sales of similar high-quality notes will also support this higher valuation.
• Medium-Risk Notes (e.g., performing notes with subprime borrowers, moderate LTV, or in less stable markets): Here, the discount rate will be higher to compensate for the increased probability of default or prepayment. The DCF will produce a lower present value. Comparable sales might be harder to find, requiring more careful selection.
• High-Risk Notes (e.g., non-performing notes, notes with significant delinquency, high LTV, or problematic borrower situations): These notes require the most rigorous analysis. The discount rate will be substantially higher, reflecting the significant uncertainty. Valuation might also heavily rely on the liquidation value of the underlying collateral if foreclosure is a likely outcome. Comparable sales of distressed notes will be essential but must be scrutinized for their specific circumstances.

It’s vital to remember that the “market value” is ultimately what a willing buyer will pay and a willing seller will accept. Your valuation is an informed estimate, and understanding these different approaches allows you to negotiate from a position of strength and clarity.

Structuring a Mortgage Note Sale

Embarking on the journey of selling a mortgage note requires a strategic approach to structuring your deal. It’s not just about finding a buyer; it’s about crafting an agreement that aligns with your financial goals and risk tolerance. This section will illuminate the pathways to structuring your note sale for maximum impact and success.Understanding the various ways to structure a mortgage note sale is paramount to achieving your desired outcome.

Each structure offers a unique set of advantages and disadvantages, and the right choice depends entirely on your individual circumstances and objectives. Let’s explore these critical components.

Deal Structures for Selling Mortgage Notes

The flexibility of mortgage note investing allows for a variety of deal structures, each catering to different seller needs and buyer appetites. These structures can range from a complete divestment to a more nuanced, partial divestment, offering a spectrum of financial and strategic possibilities.Here are common deal structures you might encounter or choose to implement:

• All-Cash Sale: This is the most straightforward structure. The seller receives the full agreed-upon price for the note in cash at closing. It provides immediate liquidity and eliminates future risk associated with the note.
• Partial Sale with Retained Interest: In this scenario, the seller sells a portion of the future cash flows from the note, retaining the remaining interest. This allows the seller to access some immediate capital while still benefiting from a portion of the ongoing payments. For instance, a seller might sell 50% of the remaining payments for a discounted lump sum.
• Structured Settlement/Installment Sale: Instead of a lump sum, the seller receives payments over a specified period. This can be beneficial for tax deferral purposes and can provide a more predictable income stream. It’s akin to a seller financing arrangement from the buyer’s perspective, but from the seller’s viewpoint, they are receiving structured payments for the sale of their note.
• Lease Option on the Note: While less common, a seller might lease the rights to collect payments for a period, with an option for the buyer to purchase the note outright at the end of the lease term. This provides a trial period for the buyer and a potential exit strategy for the seller.

Outright Sale Versus Partial Sale, How to sell mortgage notes

The decision between selling a mortgage note outright or opting for a partial sale is a pivotal one, impacting your immediate financial position, long-term investment strategy, and risk exposure. Each approach serves distinct purposes and comes with its own set of trade-offs.Selling a note outright offers a definitive exit and immediate capital infusion.

• Advantages of an Outright Sale:
  • Immediate Liquidity: You receive a substantial sum of cash at closing, which can be reinvested, used for personal needs, or to diversify your portfolio.
  • Risk Elimination: Once the sale is complete, you are no longer exposed to the risks associated with the note, such as borrower default, delinquencies, or property value fluctuations.
  • Simplified Management: You are free from the administrative burdens of servicing the loan, including payment collection, borrower communication, and potential foreclosure proceedings.
  • Tax Deferral Opportunities: Depending on the jurisdiction and how the sale is structured, an outright sale might offer opportunities for capital gains tax deferral.
• Disadvantages of an Outright Sale:
  • Lower Potential Future Returns: You forfeit all future interest income and principal repayments from the note, potentially missing out on higher returns if the borrower performs exceptionally well.
  • Opportunity Cost: The capital received might not generate returns as high as the note’s potential yield if invested elsewhere.

A partial sale, conversely, allows you to retain a stake in the note’s performance.

• Advantages of a Partial Sale:
  • Access to Capital While Retaining Upside: You can generate immediate cash while still benefiting from a portion of the future cash flows, providing a blend of liquidity and potential growth.
  • Diversification: The cash received can be used to invest in other opportunities, diversifying your overall investment portfolio.
  • Risk Mitigation: By selling a portion, you reduce your exposure to the note’s inherent risks, while still maintaining some interest.
• Disadvantages of a Partial Sale:
  • Ongoing Management: You will still be involved in managing the retained portion of the note, requiring ongoing attention and potential administrative tasks.
  • Reduced Upside: Your potential future returns are capped by the portion of the note you have retained.
  • Complexity: Structuring and managing partial sales can be more complex than a straightforward outright sale.

Seller Financing in Note Sales

Seller financing, in the context of selling a mortgage note, refers to a situation where the seller of the note essentially provides financing to the buyer of that note. This is a less common but viable strategy, particularly when direct cash buyers are scarce or when the seller wishes to retain a degree of control or future interest in the note.In this arrangement, the buyer of the note does not pay the full purchase price upfront.

Instead, the seller agrees to receive payments from the buyer over time, effectively acting as a lender to the note buyer. This can take various forms, such as an installment sale where the seller receives payments from the buyer, or a more complex arrangement where the seller retains a subordinate lien on the note itself.

Seller financing in note sales allows for flexible deal structures, bridging the gap between a seller’s desire for liquidity and a buyer’s cash flow limitations.

The primary advantage for the seller is the ability to potentially achieve a higher overall sale price and earn interest on the financed portion. For the buyer, it allows them to acquire a note with less upfront capital, spreading the cost over time. However, it also introduces risk for the seller, as they are now reliant on the note buyer’s ability to make their payments, in addition to the original borrower’s performance.

Promissory Note Agreement Template

A promissory note is a fundamental legal document that Artikels the terms and conditions of a loan. When selling a mortgage note, a clear and comprehensive promissory note is crucial for formalizing the agreement between the buyer and seller, especially if seller financing is involved. Below is a simplified template structure.

A well-drafted promissory note protects all parties involved by clearly defining obligations, repayment terms, and consequences of default.

Here is a basic template for a simple promissory note agreement:

Section	Description
Principal Amount	The total amount of money being borrowed.
Interest Rate	The annual rate at which interest will accrue on the unpaid principal.
Payment Schedule	Details of how and when payments are to be made (e.g., monthly, quarterly, lump sum). Includes the start date and end date of payments.
Maturity Date	The date by which the entire principal and any accrued interest must be paid in full.
Late Fees	Penalties for payments made after the due date, including the amount or percentage and grace period.
Default Clause	Specifies what constitutes a default (e.g., non-payment, breach of other terms) and the remedies available to the lender.
Prepayment Clause	States whether the borrower can prepay the principal without penalty, and if so, under what conditions.
Governing Law	The jurisdiction whose laws will govern the interpretation and enforcement of the note.
Signatures	Spaces for the borrower(s) and lender(s) to sign and date the agreement.

Understanding Buyer Motivations

The mortgage note market thrives on the diverse needs and strategic objectives of its participants. Recognizing these varied motivations is paramount to successfully structuring and closing a note sale. When you understand what drives a buyer, you can better position your offer and find the right partner for your transaction. It’s about creating a win-win scenario, where their goals are met, and yours are achieved.Every buyer enters the market with a specific blueprint for how a mortgage note fits into their financial landscape.

Some seek steady, predictable cash flow, while others are drawn to the potential for significant upside through strategic management. The distinction between performing and non-performing notes often dictates which type of investor will be most interested, and understanding these nuances is key to unlocking value.

Investor Interest in Purchasing Mortgage Notes

The appeal of mortgage notes as investments stems from their unique blend of characteristics that cater to a wide spectrum of financial strategies. They offer a tangible asset backed by real estate, providing a degree of security often sought after by investors. Furthermore, the income generated from these notes can be structured in various ways, offering flexibility that traditional investments might not provide.

This adaptability makes them a compelling option for both seasoned professionals and those new to alternative investments.The mortgage note market is a dynamic ecosystem populated by a rich tapestry of investors, each with their own unique set of objectives and risk appetites. From individuals seeking to supplement their retirement income to large financial institutions looking to diversify their portfolios, the motivations for acquiring mortgage notes are as varied as the notes themselves.

Understanding this diverse landscape is crucial for anyone looking to successfully navigate the sale of a mortgage note.

The Appeal of Performing Notes for Passive Income Seekers

Performing mortgage notes represent a powerful tool for individuals and entities focused on generating consistent, reliable passive income. These notes are actively being paid by the borrower, meaning the investor steps into a stream of predictable cash flow. For those who value stability and a hands-off approach, the regular principal and interest payments provide a dependable source of revenue, often outperforming traditional savings accounts or bonds in terms of yield.

Performing notes offer the allure of a ‘mailbox money’ scenario – income that arrives with minimal ongoing effort, allowing investors to focus on other ventures or simply enjoy their financial freedom.

The primary motivation for acquiring performing notes is the immediate and ongoing cash flow they provide. Investors can purchase these notes and receive monthly payments, which can be used to cover living expenses, reinvest in other assets, or simply add to their wealth accumulation. This predictability is highly attractive to individuals nearing retirement, those looking to supplement their current income, or any investor prioritizing a steady financial return.

Strategic Reasons for Acquiring Non-Performing Notes

Non-performing notes (NPNs) present a different, albeit potentially more lucrative, opportunity for investors with a higher tolerance for risk and a more hands-on approach. The appeal here lies in the inherent discount at which these notes are typically purchased. Investors acquire these notes at a fraction of their unpaid principal balance, creating significant room for profit through various exit strategies.The strategic acquisition of non-performing notes is driven by the potential for substantial returns through asset repositioning and value enhancement.

Investors in this space are not just buying a debt instrument; they are buying the underlying real estate asset at a discount. Their strategy often involves working with the borrower to find a resolution, such as a loan modification or repayment plan, or, if necessary, initiating foreclosure proceedings to take possession of the property and sell it for a profit.

Key strategies employed by investors in non-performing notes include:

• Loan Modification: Restructuring the loan terms to make it affordable for the borrower, thereby returning the note to performing status and allowing the investor to collect payments at a discounted purchase price.
• Deed in Lieu of Foreclosure: Negotiating with the borrower to voluntarily surrender the property, avoiding the time and expense of a formal foreclosure process.
• Foreclosure: If other resolutions fail, initiating foreclosure to gain ownership of the property, which can then be renovated and sold, or held for rental income.
• Note Sale: Selling the non-performing note to another investor who specializes in resolving such assets, often at a profit from the initial discounted purchase.

Motivations of Institutional Buyers Versus Individual Investors

The landscape of mortgage note buyers is broadly segmented into two major categories: institutional buyers and individual investors. While both seek returns, their scale, operational capacity, and strategic objectives often differ significantly, influencing their approach to acquiring and managing notes. Understanding these differences is vital for tailoring your sale to the most suitable buyer.Institutional buyers, such as hedge funds, private equity firms, and large asset management companies, typically operate with substantial capital reserves and sophisticated operational infrastructure.

Their motivations often revolve around portfolio diversification, risk management on a large scale, and achieving specific yield targets across vast portfolios of assets. They are equipped to handle large volumes of transactions and possess the expertise to manage complex resolutions for non-performing assets.

The motivations of institutional buyers often include:

• Portfolio Diversification: Integrating mortgage notes into broader investment portfolios to reduce overall risk and enhance returns.
• Scale and Efficiency: Leveraging their infrastructure to acquire and manage large quantities of notes, benefiting from economies of scale.
• Yield Optimization: Targeting specific risk-adjusted returns that align with their fund mandates.
• Specialized Expertise: Employing teams dedicated to asset management, legal resolution, and borrower outreach for non-performing assets.

Individual investors, on the other hand, range from sophisticated accredited investors to everyday individuals looking to build wealth through alternative means. Their motivations are often more personal and can include supplementing retirement income, building a real estate portfolio, or achieving financial independence. They may focus on smaller, more manageable note acquisitions, often with a preference for performing notes that offer predictable cash flow.

Individual investors are typically driven by:

• Supplemental Income: Generating additional monthly income to support lifestyle or financial goals.
• Long-Term Wealth Building: Acquiring assets that appreciate over time and provide steady returns.
• Tangible Asset Investment: A preference for investments tied to physical real estate.
• Control and Flexibility: The ability to select specific notes that align with their personal risk tolerance and investment horizon.

Concluding Remarks

Navigating the landscape of how to sell mortgage notes is a multifaceted endeavor, demanding diligence, strategic thinking, and a keen understanding of market dynamics. By meticulously preparing your notes, understanding valuation methods, and effectively marketing your offerings, you position yourself for a successful sale. The engagement of experienced professionals further solidifies the integrity and efficiency of the transaction, ensuring that both legal and financial considerations are optimally managed.

Ultimately, a well-executed sale not only unlocks capital but also contributes to the broader ecosystem of real estate investment.

General Inquiries

What is the fastest way to sell a mortgage note?

The fastest way often involves working with a specialized note broker who has an established network of buyers and can expedite the due diligence and closing process. Offering competitive pricing and having all documentation readily available also significantly speeds up the sale.

Can I sell a mortgage note to a family member?

Yes, you can sell a mortgage note to a family member. This would typically involve a formal assignment of the note and mortgage, and it’s advisable to have legal counsel involved to ensure all documentation is correctly executed and recorded to protect all parties.

What happens if a buyer wants to renegotiate the price after due diligence?

If a buyer wants to renegotiate after due diligence, it’s usually due to findings during their evaluation that impact the note’s perceived value or risk. You can either accept the new offer, reject it, or attempt to counter-offer based on your own assessment of the findings and your willingness to compromise.

How do I ensure the buyer is legitimate and has the funds?

Legitimate buyers will readily provide proof of funds or have a reputable funding source. Working with escrow companies or title companies that handle the transaction ensures that funds are secured before the note is transferred. Verifying their professional affiliations and references can also be helpful.

What is the difference between selling the note and selling the property?

Selling the note means you are selling the debt instrument itself, which represents the borrower’s obligation to pay. Selling the property means you are selling the physical asset. When you sell the note, you are essentially selling the right to receive future payments from the borrower.