3 Ways to Structure a Partial

Structuring the paperwork and form of partials usually occur in three common ways. Each of these ways have a few advantages and disadvantages to them.

Out the 3 types that we will discuss, the first form is most used and has the most disadvantages too.

That said, here are 3 ways to structure a ‘partial’:

#1: Contractual

This method involves spelling out the interests of all parties in a joint ownership where the note is assigned to the purchaser and re-assigned to the original owner at the end of the term. While structuring a partial for an institution might seem easier, there are a number of potential risks as well.

One thing you should watch out for is covering your liabilities by adding clear disclaimers as the note seller and getting it signed by the note seller as well.

#2: Note-splitting

This method involves splitting the note into two parts where the seller can take a subordinated interest. One example of this would be to split a trust deed into two parts. So, you can squeeze the payments into the first while have the second begin paying once the first part is fully paid off. The only issue with this is that the payor will have to be enticed or compensated as a result.

#3: Compensating Note

This method involves buying the Whole note and not just the partial. The advantage of this is that the terms are relatively the same but also has an yield that is better or comparable too. How it works is that one part is paid in cash while the balance is paid using a newly created note.

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