Understand what factors influence a seller held mortgage

What is your Seller-Held or Private Mortgage worth?

This depends on several factors:

  • The interest rate on your mortgage
  • Whether it is current or not
  • If it is a first or second mortgage
  • The size of the mortgage to the value of the property (Loan to Value)
  • The credit report of the borrower
  • How many payments you have received (Is the mortgage “aged”)
  • The type of property

Value IncreasedValue Decreased
Equity position of 20% or moreLimited equity/Small down payments
1-10 year maturities, or longer term amortization with balloonLong term fully amortizing obligations (no balloons)
Good borrower creditBad borrower credit
Seasoned note with satisfactory payment historyUnseasoned note or simultaneous closing
Market interest rate for risk involvedBelow Market interest rate for risk involved
Late charge provision in noteNo late charge provision on the note
Due on sale/right to approve Assumptor clauseNo due on sale or Assumption/Approval right
Financial statement on borrowerNo Financial statement on borrower
First mortgage or large second mortgage relative to firstLarge amount of debt senior to subject debt (on junior liens only)
Step rates which increase interest rate over time (not usual)Fixed rate note
Timber cutting clause on acreage propertiesNo timber cutting clause on acreage properties
Flood insurance required and maintained if property is in flood zoneProperty in a flood zone without flood insurance
Professional note collection by third party Seller collects own payments
Cross default clause in junior liens (default on first mortgage is grounds to default the second, even if current)No cross default clause in junior liens (default on first mortgage can mean second is wiped out and holder of second has no right to default the second, if it is current)
Credit report on borrower available and up to date No credit report on borrower and no right to pull one
Reasonable sized mortgage compared to the property value Small size note or contract
Well written and structured note and Deed Release provisions Badly written note
Title insurance available and no exclusions No title insurance
Subordination clause that could force the note into lower priority