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Partial sales of a note are very attractive from the point of view of a note holder because the note holder does not have to take a big discount.  Normally, when a note is sold in its entirety, it is sold at a “discount” off the current principal balance.

The reason for this is that the face interest rate of the note is seldom as high as the market yield required in the secondary mortgage money market. The size of the discount varies depending on the current yield requirements in the secondary mortgage money market, the interest rate of the note, the overall market conditions, the condition of the note, its position, the property etc.

However, the main reason for a discount is that the payments due in the distant future are worth much less in today’s dollars than the payments that are due soon.

In a full sale, the note holder is selling all the payments, and not getting much for the ones at the end of the term—thus the discount.

In a partial sale where the front-end or near term payments are sold, most of the payment is interest. This means that the note holder gets a sizable amount of cash now and when the note holder gets the note back after a predetermined number of payments, the balance of the note is still fairly high. The note holder then gets the remaining payments.

A partial sale of the front-end payments is like having your cake and eating it, too. You get a sizable chunk of cash now, and when you get the note back, it has a high remaining principal balance and payment left to collect

In many cases, note holders prefer this type of an arrangement rather than selling the entire note for a large discount off the current principal balance.

Full Sale-Split Funding.  In the split-funded sale, the note holder is selling all of the payments but is only selling part of the payments now and part of the payments in the future. This type of sale is really a hybrid between a full sale and a partial sale.

The note could be split into three, four or more equal or unequal parts.

Partial Sale-One Half Of Each Monthly Payment.  In this type of a sale, the note holder sells one half of each monthly payment and continues to receive the other half. This is a particularly attractive way to sell a note if you need some cash now but also want to keep part of the monthly cash flow.  Again, this is only one variation of this type of sale. Many different variations are available to suit your needs as a note holder.

Selling a partial can give the seller some upfront cash while maintaining a significant portion of the investments value.  Talk to us about the options available to you in your situation.