What Is a Partial Note Purchase?

A partial note purchase is a real estate transaction that lets you invest in part of a mortgage note. In exchange for the money you invest, you receive a portion of all payments made on the note. You can collect payments until the mortgage is paid in full or until you sell your partial note.

Terry Turner, Financial writer for Annuity.org
  • Written By
    Terry Turner

    Terry Turner

    Senior Financial Writer and Financial Wellness Facilitator

    Terry Turner is a senior financial writer for Annuity.org. He holds a financial wellness facilitator certificate from the Foundation for Financial Wellness and the National Wellness Institute, and he is an active member of the Association for Financial Counseling & Planning Education (AFCPE®).

    Read More
  • Edited By Michael Santiago
  • Reviewed By
    Ebony J. Howard, CPA
    Ebony Howard Headshot

    Ebony J. Howard, CPA

    Credentialed Tax Expert

    Ebony J. Howard is a certified public accountant and freelance consultant based in Atlanta, Georgia. Ebony has a deep knowledge of the financial landscape and a background in accounting, personal finance and income tax planning and preparation.

    Read More
  • Updated: June 30, 2023
  • 5 min read time
  • This page features 7 Cited Research Articles
Fact Checked
Fact Checked

Annuity.org content is meticulously reviewed to ensure it meets our high standards for readability, accuracy, fairness and transparency.

Annuity.org articles are spellchecked, grammatically correct and typo-free. Annuity.org editors may revise content for clarity, logic, flow and meaning. Annuity.org only uses credible sources of information.

This includes reputable industry sources, select financial publications, credible nonprofits, official government reports, court records and interviews with qualified experts.

Cite Us
How to Cite Annuity.org's Article

APA Turner, T. (2023, June 30). What Is a Partial Note Purchase? Annuity.org. Retrieved June 15, 2024, from https://dev.annuity.org/selling-payments/mortgage-notes/what-is-a-partial-note-purchase/

MLA Turner, Terry. "What Is a Partial Note Purchase?" Annuity.org, 30 Jun 2023, https://dev.annuity.org/selling-payments/mortgage-notes/what-is-a-partial-note-purchase/.

Chicago Turner, Terry. "What Is a Partial Note Purchase?" Annuity.org. Last modified June 30, 2023. https://dev.annuity.org/selling-payments/mortgage-notes/what-is-a-partial-note-purchase/.

Why Trust Annuity.org
Why You Can Trust Annuity.org
Annuity.org has been providing reliable, accurate financial information to consumers since 2013. We adhere to ethical journalism practices, including presenting honest, unbiased information that follows Associated Press style guidelines and reporting facts from reliable, attributed sources. Our objective is to deliver the most comprehensive explanation of annuities, structured settlements and financial literacy topics using plain, straightforward language.

Our Partnerships, Vision and Goals

We partner with CBC Settlement Funding, a market leader with over 15 years of experience in the settlement purchasing space. Our relationship with CBC allows us to facilitate the purchase of annuities and structured settlements from consumers who are looking to get a lump sum of cash immediately for their stream of monthly payments. When we produce legitimate inquiries, we get compensated, in turn, making Annuity.org stronger for our audience. Readers are in no way obligated to use our partners’ services to access Annuity.org resources for free.

CBC and Annuity.org share a common goal of educating consumers and helping them make the best possible decision with their money. CBC is a Better Business Bureau-accredited company with an A+ rating and a member of the National Association of Settlement Purchasers (NASP), a national trade association that promotes fair, competitive and transparent standards across the secondary market. Additionally, Annuity.org operates independently of its partners and has complete editorial control over the information we publish.

Our vision is to provide users with the highest quality information possible about their financial options and empower them to make informed decisions based on their unique needs.

Key Takeaways

  • A partial note purchase is a type of real estate investment that entitles you to part of the payments made on a mortgage note. 
  • You can purchase as much or as little of a mortgage note as you need.
  • The portion of mortgage payments you receive depends on how much of the note you own. For example, owning 50% of the note entitles you to 50% of the payments. 
  • Partial notes allow you to invest at a lower cost and with less risk than investing in full mortgage notes. However, you won’t get as much profit if the note performs well. 
  • You can sell your partial mortgage note at any time with help from your lawyer. You’ll get cash for its value but will give up the right to collect any future payments from it. 

How Does a Partial Note Purchase Work?

By investing in someone’s mortgage note, you gain the right to collect a portion of the payments made on the mortgage loan. How much you receive depends on the percentage you own of the note you invested in.

For example, an investor might own a mortgage note worth $50,000 scheduled to be paid off in $1,000 payments over the next 50 months. If you purchased 50% of the note, you would be entitled to half of those $1,000 payments — $500 for 50 months — for a total of $25,000. 

To make a partial note purchase, you’ll need to:

  • Identify a suitable note. Look for local mortgage loan companies or private investors who might have one for sale. 
  • Negotiate terms of the sale. Decide on a mutually acceptable price for your partial note and figure out how much of the note that price will get you. 
  • Draft a contract. Have a lawyer lay out the terms of your sale agreement in writing, and then sign the contract along with your seller. 
  • Fund the investment. Pay the agreed-upon price and take possession of your partial note. 
  • Start receiving payments. You’ll receive the amount stipulated in your contract until the mortgage loan is paid in full. 

Pros and Cons of Partial Note Purchases

Not all mortgage note buyers purchase partial notes. 

 Some benefits of buying a partial note include: 

  • Lower investment costs. Instead of paying the full purchase price of a mortgage note, you can invest as much or as little as you want.
  • Greater potential for diversification. Buying partial notes frees up more of your investment budget to purchase other assets and further diversify your portfolio
  • Greater flexibility. You can tailor the size of your mortgage note investment to suit your needs and risk tolerance. 
  • A chance for higher returns. Buying multiple partial notes gives you more chances to secure a share of a high-performing note. Some mortgage notes generate an exceptional return in investment. 
  • A steady income stream. You’ll have the right to collect a percentage of the payments made toward the mortgage note for as long as your contract allows. 
  • Limited liability. Because you only own part of the mortgage note, you won’t lose as much equity if the borrower defaults on the loan. 

This investment option also presents risks and drawbacks, including: 

  • Limited control. Because you don’t own the entire mortgage note, you don’t have full control over the payment collection or foreclosure processes. 
  • Limited profit potential. If your investment pays off, your profits won’t be as large as they would be if you purchased the full note. 
  • Potential losses. If the borrower defaults on the mortgage, you may have to sell the property at a loss during foreclosure. 
  • Limited liquidity. You could have a hard time finding a buyer for your partial note if you want to divest.
  • Complex legal considerations. You’ll need a lawyer’s help to negotiate the terms of the sale and draft the sale contract.

Partial mortgage note sales also benefit sellers, who can convert a portion of their note into cash, allowing them to reinvest that money into other ventures while retaining some of their initial investment. However, this also reduces their control over the foreclosure process and forces them to split payments with the buyer of the partial note. 

Who Owns the Note When Part of It Is Sold?

If you sell part of a mortgage note, you retain ownership of the rest of it, giving you fractional ownership. 

The size of each party’s share depends on the terms of the original purchase agreement. The contract will specify the percentage of the note that you and the partial holder own as well as the rights and responsibilities you each have. 

Each party has a right to collect partial payments based on their percentage of ownership. Owners also have the right to collect a portion of the proceeds if the home or property is sold during foreclosure. 

Each party is responsible for collecting their portion of the payments from the mortgage holder. Parties must also agree on how to make decisions about the property, such as whether and when to initiate a foreclosure. 

When Is a Partial Note Purchase the Right Idea?

Partial note purchases work well for investors with tight budgets. They’re flexible and let you customize your real estate investment portfolio the same way you would a stock portfolio.

Consider purchasing a partial mortgage note if you:

  • Don’t have enough investment funds to buy a full mortgage note
  • Want to diversify your portfolio and spread out your risk
  • Are just starting in mortgage note investing

Remember that partial mortgage notes are an asset and a source of income. If you decide that partial note investing isn’t for you, selling your payments is always an option. You can then use the proceeds to invest in something else.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: June 30, 2023

7 Cited Research Articles

Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

  1. Carlson, D. (2019, December 3). Mortgage Notes Are Good Real Estate Investments. US News. Retrieved from https://money.usnews.com/investing/real-estate-investments/articles/why-buying-mortgage-notes-are-good-real-estate-investments
  2. Montana Board of Housing. (2018, October). Mortgage Purchase and Servicing Guide: Single Family Bond Program. Retrieved from https://housing.mt.gov/_shared/Homeownership/docs/PurchaseServicingGuide.pdf
  3. Office of the Comptroller of the Currency. (2014, February). Comptroller’s Handbook: Mortgage Banking. Retrieved from https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/mortgage-banking/pub-ch-mortgage-banking.pdf
  4. Jacobs, H. (2013, April 19). What to know before buying mortgage notes. The Washington Post. Retrieved from https://www.washingtonpost.com/realestate/what-to-know-before-buying-mortgage-notes/2013/04/18/0481cabe-a37d-11e2-be47-b44febada3a8_story.html
  5. Weise, S. (2011, December 31). KEEPING CURRENT: Setting the UCC Record Straight on Mortgage Notes. American Bar Association. Retrieved from https://www.americanbar.org/groups/business_law/publications/blt/2011/12/keeping_current
  6. Klein, W. (2006, November 8). Re: Note Brokers. State of Utah Department of Commerce: Division of Securities. Retrieved from https://securities.utah.gov/wp-content/uploads/2021/09/letters_notebroker.pdf
  7. Cambridge Dictionary. (n.d.). Fractional ownership. Retrieved from https://dictionary.cambridge.org/dictionary/english/fractional-ownership