12 Days Of Note Investing-Day #7 Seller Carry, Partials & Estates

[Tracy Z. Rewey]

A seller-financed note is an asset. The seller can elect to hold the asset collecting payments, sell the note, or leave to heirs as part of their estate. Many heirs would prefer cash now rather than payments over time. A large number of notes are purchased through estate distribution similar to this Arizona note.

The property was located in Maricopa County Arizona and comprised of two homes on an acre lot. The buyer wanted to live in one home and rent out the other for income. They had a good credit history with a solid down payment but the double house property type proved difficult to finance through a bank.

The seller agreed to sell the property for $195,000 with the buyers making a cash down payment of $60,000 at closing. The seller carried back the balance of $135,000 in an owner financed note and deed of trust. The note was written at 8% interest with 240 monthly payments of $1,129.19 each.

After receiving almost 7 years of payments the sellers desired to sell a portion of payments for medical expenses. The buyer had paid down the principal balance to $114,791.03 with 171 monthly payments remaining.

The sellers agreed to a partial purchase wherein the investor would purchase the next 120 monthly payments. The sellers received proceeds of $73,205 for the partial purchase and the seller retained a right to some of the future payments. Assuming the buyer paid according to the terms of the note, the investor would receive the next 120 monthly payments and then the seller would receive the remaining 51 monthly payments on the tail end or backend of the note.

Unfortunately the sellers passed away and the note became an asset of their estate. A personal representative was appointed to liquidate the assets of the estate for the benefit of the heirs. While the seller had sold the majority of the note payments, the estate still inherited the remainder interest on the note.

Rather than wait for the future payments, the estate decided to cash out the remainder interest so all monies could be distributed to the heirs. The note investor already receiving payments on the partial purchase agreed to also buy the balance of the remaining payments. The personal representative executed an assignment of remainder interest for a purchase price of $10,089 and the transaction closed in just a few short days.