Mortgage note investing is hardly a novel idea. Yet until BigBidder.com launched, note investing was largely an insider game restricted to Wall Street firms with the financial wherewithal to purchase huge pools of loans. In fact, most people never had the opportunity to purchase an individual mortgage note until BigBidder.com came along. So it’s no surprise that many people are relatively unfamiliar with note investing.
As with any new investment, people want to understand what they’re getting into before they jump in. To help people learn more about note investing, we’ve developed a series of blog posts titled Note Investing 101, and over the next few weeks, we’ll be going over the basics of mortgage note investing, covering a new topic each blog post. Today, we answer the question, what is a mortgage note?
A mortgage note is a promissory note stating the principal amount due, the rate of interest, and the terms for repayment of the loan. The borrower signing the note, and any cosigners, are personally liable for the repayment of the debt. The collateral used to secure the note is real property.
Generally speaking, these are home loans made to buy or refinance property. A borrower gets a mortgage from the bank and makes their monthly mortgage payment to whomever owns the note — whether it be the bank, a hedge fund, or an individual such as yourself.
Next time, we’ll go over the differences between investing in real estate and investing in mortgage notes.
April 12th, 2010 at 4:34 pm
With all of the short sales going the way of discounting the first position loan and almost always eliminating the second position, is it not a prudent idea to never buy a second position note?