Whether a loan is taken from a bank or any other party, lenders usually require buyers to sign promissory notes, which describe the repayment terms. Even when a borrower takes a loan from a friend or relative, promissory notes are also highly recommended. Documenting a loan can save all parties involved from misunderstandings about the terms of the loan and even from tax issues.

Promissory Notes through a Home Seller

There are times when a seller assumes the role that a mortgage company usually assumes. In this situation, the seller provides the financing to the buyer, perhaps because the buyer does not qualify for traditional financing, or because the buyer is a friend. The seller may also decide to provide financing because he or she wishes to sell the home quickly, or to create a long-standing stream of income.

Sometimes, the circumstances change and financing sellers decide they want to sell the promissory notes for cash. They may be worried about a foreclosure, or perhaps just grow tired of receiving monthly payments. Many people sell their real estate notes for cash to purchase a second home, take a vacation, or to settle a divorce. For whatever reason, selling mortgage notes creates instant cash, but at a discount.

The question then, is how much promissory notes may be worth. Although the notes must always be sold at a discount, the value of the real estate notes depends on many different criteria, since there is no standard note or property. Some criteria looked at by real estate note buyers are the interest rate and terms of the note, the payer's credit and payment history, as well as the property condition, location, and type.