If you’re interested in investing in real estate without actually acquiring properties outright, purchasing promissory notes can be another way to go about it. While banks are unlikely to provide funds for this type of real estate investment, hard money lenders are willing in the right circumstances to underwrite loans secured by promissory notes rather than real estate assets. Here are ten things to consider when making a promissory note purchase:

1. Confirm the amount that is outstanding on the loan principal and review the loan documents, taking note of specific repayment terms as laid out in the original documents.
2. Ask the seller (or the Assignor) of the note for the last date on which a loan payment was received and verify the date on which the next payment is due.
3. Review the existing title insurance policy (taken out by either the mortgage holder or the lender) to certify that the note is for a first-position mortgage (not only are these types of loans the most desirable for investments, but they are also the most likely to qualify for note-purchase hard money loans).
4. Determine the current payment status of the property taxes and required insurance (such as fire hazard) for the property because any delinquent taxes or insurance payments may transfer to you as the new note holder.
5. Obtain an appraisal of the property to determine its fair market value to verify that the property’s value is still sufficient to secure the note.
6. Have the seller sign over the mortgage security instrument to you. Once executed and recorded, this will transfer all rights, titles, and interest as laid out in the instrument to you, the assignee.
7. Get the original promissory note endorsed to you so that it matches the assignment on the mortgage security instrument. This endorsement can be directly on the original promissory note documents or included separately as an allonge attachment.
8. Take physical possession of the original endorsed promissory note and assigned mortgage security instrument. These documents are what comprise your purchase and they determine the rights that you have to enforce collection of the debt in the event of non-payment.
9. Request an estoppel affidavit from the seller stating the actual balance and terms of the note in the event that there is a dispute with the debtor in the future.
10. Send letters to both the note payer and the insurance company or agent notifying them that the note has been transferred and providing them with your information.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        It is advisable for investors who want to make note purchases to have the security instruments and other legal documents associated with the note reviewed by their own legal counsel before proceeding with the note purchase to ensure that they are aware of what rights they will have when it comes to collecting the debt or entering into foreclosure proceedings in the event of non-payment.