Posted by David Butler on November 22, 2000 at 21:33:12:
Hello Sean,
Hey… shouldn’t affect you much after the note is sold either. In fact, a great many loans are sold every day, and often the borrowers never find out about it. The note sale has no bearing on you on a straight up basis. Your note is a contract for money. Whoever holds that contract can sell it to anyone else, and the note buyer has the right to step into the seller’s place… no more, no less.
And, of course you can buy the note as well through a refinance, either from the current holder, or the new holder. Nothing changes anything on your end of the deal. But, you would want to have a reason. Maybe the note has a balloon payment coming due, and you will need to refinance to pay it off. Maybe you can get a better rate and term with a new loan, so you refinance to achieve that objective.
And of course, the best way to achieve this is to purchase the note from the note holder, at a discount.
So, I am not certain I follow you here… particularly when you say you immediately sent a letter to the seller, suggesting that “…we brainstorm to improve the marketability of his note…”???
Generally speaking, the ways to improve the marketability of the note would be you having a higher credit score and income history, or the note having a higher interest rate, a shorter term, or late payment/ prepayment penalty provisions… but none these items helps you in any way in particular, at least not in the short term.
In fact, generally speaking, your only interest in the note would be to purchase it at a discount. And if you need to refinance in order to do that, you would want the discount to be deep enough to cover the costs of your refinance AND give you enough benefit to make it worth your time.
If the current buyer already has the deal under contract with the seller, you might be out of luck… at least with that note holder. And, you might be in for some very good news as well. Many an intelligent note buyer will sooner or later come to you and offer you some type of a discount… either for early payoff, or by restructuring the terms of the note.
Say you have 216 monthly payments left at $318 p/m at that 10% coupon rate. The new note holder might come to you and offer to lower the rate to 9.5% if you can make monthly payments of $360 instead. Or maybe 9% if you can pay $400 per month. Maybe he’ll lower your rate to 8% if you can pay $500 per month.
Under any of these scenarios, you receive two major cost benefits… less interest expense because you are paying the loan off faster off course… but, an additional significant savings because you are paying interest at a lower rate under each of the options I mentioned above. And… if the new note holder doesn’t ask you, you should ask him…
Anything wrong with this that you can see??? Can you see the current noteholder offering you anything better at this point in time??? Of course, if his current deal falls through, you can try to get him to restructure the note too… if that fits into your budget!
Hope this helps… and have a good bird!
David P. Butler