Whether buying or selling notes, understanding the players in a seller-financed transaction is key to profitable outcomes. Here are the five main players along with some standard industry terminology.

Seller – Note Holder – Payee

When a property seller accepts payments from a buyer over time using seller-financing, they also become the note holder, note owner, or payee.

The payee receives recurring payments on the note or contract from the buyer. If the payee assigns or sells their rights to future payments to a note investor, they also become a note seller.

When it comes to the legal documents, the payee is identified as the “Beneficiary” on a Deed of Trust and the “Mortgagee” on a Mortgage.

Purchaser – Property Buyer – Payer – Borrower

The purchaser buys the property from the seller. Unless they pay cash, the purchaser will also become the payer or borrower.

The payer will make payments, typically monthly, to the seller. When property is financed with a traditional loan the payments are made to a bank or mortgage lender. When the seller finances the property to the purchaser, these payments are instead made to the seller.

The payer is identified as the “Maker” on a Note, the “Grantor or Trustor” on a Deed of Trust, and the “Mortgagor” on a Mortgage.

Note Buyer – Funding Source – Note Investor

When a seller prefers cash now instead of payments over time, they can sell their rights to some or all of the future payments to a note buyer or note investor. The funds to purchase these rights can come from a financial institution, retirement account, private company, or an individual’s personal bank account.

Once the investor buys the note, they formally notify the payer (borrower) to now make future payments to them, ideally through a third-party loan servicing agent. While all loan terms stay the same for the payer, where they send the payment will most likely change.

Note Finder – Cash Flow Consultant – Referral Source

When a note owner wants to liquidate their note for cash, they will often turn to a note finder, from whom they may have been contacted through direct mail or other forms of outreach. Also known as cash flow consultants, these intermediaries earn a fee to act as a financial matchmaker between the note seller and the note investor. Note finders serve a key role in facilitating note sale transactions.

Servicing Agent

The servicing agent is an independent third-party entity which collects the payments each month from the payer/borrower and keeps track of principal, interest, and the remaining note balance. They might also hold the original documents and/or manage reserve or escrow accounts for property taxes and homeowner’s insurance.

While these are the principle players in private financing, a transaction will usually involve other supporting members. These may include a title company, appraiser, real estate agent, attorney, and other professionals that are a regular part of the real estate and note buying and selling process.

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