Home » Finance » Structured Settlements

Selling Your Note For Lump Sum Cash

Jun 4, 2008
Many people have monthly payments coming in from a structured settlement, annuity, lottery winnings or from property in which they hold the mortgage. Often these people find that they are in need of the total amount rather than monthly payments over time. Usually these note holders are people that need the money for increased investing ventures or for reasons of financial stress. Whatever the reason may be, they need someone to purchase the note from them for a lump sum of cash in return.

A cash flow note is nothing more than selling a monthly note, such as a structured settlement or mortgage note, for a lump sum of cash in return. These transactions take place everyday in the United States and is booming business for people who actively pursue cash flow notes as a source of income.

Usually, the process of selling a cash flow note starts with the seller locating a note buyer. A note buyer is someone that buys notes for investment purposes and income streams. The note buyer has certain criteria and standards the note must meet before the note buyer will purchase the note. The note buyers evaluation process typically consist of different factors including the type of property, interest rate, the balance remaining on the note and the credit of the payor. The note buyer does these checks to estimate if the note is worth the risk he will assume if he purchases the note. The note buyer must consider many variables before agreeing to the purchase the note including bankruptcy by the payor, declining interest rates or the payor defaulting on the note.

In order to compensate and offset the risk, the note buyer will offer less than what the value of the remaining balance of the note is in order to make the risk within tolerable limits should any of the above factors occur. Although the note seller will not receive full value of the cash flow note, the seller will receive a lump sum of cash freeing up cash that would otherwise take years to receive in full. Some note holders need to liquidate to increase their portfolio and purchase other notes with a higher interest rate making more money than they would on the previously held note.

This is referred to as the time value of money and which means that the present value of your money is more than the future value of your money. Selling a low interest note and taking a lump sum payment and investing in a higher paying note earning the difference in your new investment. Selling a note to a note buyer can have a faster turn around time as well, rather than applying for a loan from a bank or lending institution. Cash flow note transactions can take up to two weeks, maybe less, whereas a loan could take a month or longer for approval.

Cash flow note sales are a viable way for a note holder to free up cash for liquidation purposes, taking the money and investing it elsewhere for a better return. Or in some cases, a note holder may need cash for emergency reasons or for health related reasons and selling a note is a quick way to acquire much needed cash. Although selling note is quick, a note seller should always do their due diligence on a potential note buyer before ever agreeing to sell the note.
About the Author
Phillip Hatley writes about many subjects in the financial industry including equities trading and cash flow notes. For more information about selling cash flow notes, please visit his cash flow notes blog.
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