Can I sell Contract for Deed or Notes on the MLS
I received a Facebook Message from an area Realtor asking me if I have ever sold a Contract for Deed or a Note on the MLS.
My answer was that I did not even know it was possible, and for the record it is not.
But this question does beg to be looked at more in depth.
First we need to define what is and what is not a NOTE and a Contract for Deed.
With a Note you have two things. A Promissory Note that is a Promise to pay a debt. It is combined with a Deed of Trust (MO) or a Mortgage (KS) depending on your state laws that define how that debt is secured and what the lender can do if the borrower does not pay as agreed. With a note the note owner or the lender owns two piece of paper, the Note itself and the Security Agreement (deed of trust or mortgage). The note owner can sell those pieces of paper.
The house that is the underlying collateral usually in this situation is owned by the Home Owner or Borrower and at no time can the Note Owner do anything with the House unless some very specific things within the security instrument are met. So for example if the borrower abandons the house and stops paying, the note owner could enter the premises usually to secure the property and make sure the pipes dont freeze or that the house is open with unlocked doors so thieves and vagrants can’t get in.
The lender cannot sell the house itself because the lender does not own the house. However if the terms of the not are not met, the lender could foreclose, gain ownership of the house and then sell the house.
With a Contract for Deed we hit some grey area. For the most part a Contract for Deed is an agreement between a home owner and a home buyer that the buyer will pay per the contract and once the contract is complete, they will then get the deed.
During the time frame that the borrower is paying on the Contract for Deed, the seller is the true owner of the property and has all rights of an owner of a property, including the right to sell the property. However, the sale of that property would be subject to the contract for deed and the new owner of the property would need to abide by that contract.
The Contract for Deed buyer also has ownership interest and to get the legal and equitable interest all sorted out you need to consult an attorney. But in the eyes of the law, if I have this right, the Seller of the Home has legal interest and the Contract for Deed Buyer has equitable interest. So if the CFD Buyer stops paying, the Seller would need to foreclose the CFD to get full Legal Ownership and to terminate the Equitable Interest.
But can the Seller sell a contract for deed. Yes, because legally the Seller (the person selling the home to a tenant buyer through CFD) still owns the house and can sell it. But you to sell a CFD you actually sell the house itself and all legal interest, subject to the Contract for Deed and you assign the Contract for Deed to the new home owner who will then receive the payments from the tenant CFD buyer.
So how do you sell a note and a contract for deed and can you put them in MLS.
Well to sell a note, you are basically selling paper. You want to assemble the note, the security instrument, pay history, appraisal of the collateral at time of origination, borrowers credit report, borrowers loan app, all the docs the borrower turned in, the lenders title, everything you have that pertains to that note. Then you go out and in general hunt for a person who would be interested in buying that note. Usually you would have that person sign a confidentiality agreement as you would then be sharing your borrowers personal financial information. The note buyer would then review all your paper, decide they want it, negotiate a price, sign a purchase agreement, wire the funds. You as the seller would receive the funds, endorse the note to the buyer and assign the security agreement to the buyer.
But because there is no real property – house or land involved in this sale, you probably can’t list it for sale on your local MLS – you can however list it for sale on notes sites AND now MAREI members can list their notes for sale on their free website provided by MAREI and it will then appear on the MAREI site and be sent out just like the houses. We would advise, if advertising on most public sites to NOT use the complete address or your borrowers name.
Can you list a Contract for Deed for sale on MLS and what are the pitfalls.
If you have a house that you own, that you sold to a Contract for Deed buyer, you can indeed list that house for sale on the local MLS. You are after all just selling a house.
But this will come with some HUGE pitfalls. When you are selling a house on MLS, the buyers and their agents expect to see interior photos to the house and gain access to walk through the house. But the house seller’s access to the house will be limited to what is in the Contract for Deed and it may be almost impossible to actually get inside of the home. So as a practical matter, marketing a house that is subject to an existing Contract for Deed might be a tough go on MLS.
You would need to list with as much info about the CFD as possible with out giving away any of the borrowers private information and you would need to get some sort of disclosure signed by all potential buyers of the house that they agree to the CFD and will keep all CFD personal and financial info confidential. We are usually talking birth dates, social security numbers and the like.
A more practical way to sell a Contract for Deed would be to market it on Note Buyer websites, in the same fashion you would a Note, and the potential buyers would go through the same process and confidentiality agreements as they would with a Note. The difference would come a contract and closing time as the contract would be to purchase the house subject to the CFD and the closing would be at a title company or attorney office, just like any other home sale you would have in your state. But in this case the buyer would not have much if any expectation of actually getting inside of the home.
Some sites to market notes and contract for deeds:
- LinkedIn – by far my best place to find people that buy and sell notes. You don’t actually list the item for sale, but ask for people who might buy notes or CFD in a state or City. It helps to join as many groups as possible and if you are looking for buyers in the Kansas City Market, I would join MAREI’s group – Mid-America Association of Real Estate Investors.
- LoanMLS – this is a local company that you can look into. It was a major player and then the owners sold out and the new owners are working to get more action and interest.
- FCI Exchange – this by far is the largest site I have seen for marketing cash flows for sale. They charge a minimal fee when the sale closes and can facilitate the closing for you as well.
- MAREIMember.com – this is MAREI’s membership website where members can log in, activate their own investor website and market their own investment properties and notes.