I Inherited a Promissory Note in Texas — What Are My Options?

Inheriting a promissory note in Texas can feel like receiving a financial puzzle without the picture on the box. You know it has value — somebody is making payments on it, or at least they are supposed to be — but you may have no idea how it works, what it is worth, or what you are supposed to do with it. If the person who created the note is no longer around to explain the terms, the borrower, or the history, you are starting from scratch with an asset you never asked for and may not want to manage.

You are not alone in this situation. Promissory notes are among the most commonly inherited financial assets in Texas, where owner financing has been a staple of real estate transactions for generations. Parents sell the family farm to a neighbor with seller financing. A grandparent finances the sale of a house to help a young family get started. An investor builds a portfolio of notes on land deals over a lifetime. When the note holder passes away, those notes become part of the estate and are passed to heirs who may have zero experience with private lending.

The good news is that you have clear, well-defined options for what to do with an inherited promissory note. This guide walks you through each option, explains the practical and financial considerations for each path, and helps you make an informed decision about the approach that makes the most sense for your situation.

Understanding What You Inherited

Before you can make any decisions, you need to understand exactly what you own. An inherited promissory note is a legal document that entitles you to receive a stream of payments from a borrower, secured by a deed of trust against Texas real estate. The key terms you need to identify are the current unpaid balance, the interest rate, the monthly or periodic payment amount, the number of remaining payments or the maturity date, the identity and contact information of the borrower, and the property that secures the note including its address, type, and current condition.

Finding the Documents

The first practical step is locating the original documents. You need the promissory note itself, which is the document signed by the borrower promising to repay, and the deed of trust, which is the document recorded with the county that secures the note against the property. These may be in the deceased's files, a safe deposit box, an attorney's office, or with the title company that handled the original closing.

If you cannot find the original promissory note, do not panic. The recorded deed of trust is available through the county clerk's office, and a lost note affidavit can be executed to establish your rights as the note holder. Missing documents complicate things but do not make the note worthless or unsellable.

Establishing Your Legal Authority

To manage or sell an inherited note, you need legal authority to act on behalf of the estate or in your own capacity as the new owner. This authority typically comes through one of several paths depending on how the estate was structured.

If the note was held in a living trust, the successor trustee has authority to manage and sell the note according to the trust terms. If the estate goes through probate, the executor or administrator named in the will or appointed by the court has authority to manage estate assets, including notes. In some cases, the probate court issues letters testamentary or letters of administration that specifically authorize the personal representative to deal with estate assets. If the note was jointly held with rights of survivorship, the surviving holder automatically becomes the sole owner without the need for probate.

If you are unsure about your legal authority, consult with a probate attorney. You need clear documentation of your right to act before you can sell the note or take other significant actions.

Option 1: Continue Collecting Payments

The simplest option is to step into the shoes of the deceased note holder and continue collecting payments from the borrower. This preserves the income stream and requires no immediate action beyond notifying the borrower of the change in ownership and updating payment instructions.

What This Involves

If you choose to continue holding the note, you become the private lender. This means you are responsible for tracking payments and following up on any that are late or missed, maintaining accurate records for tax purposes, verifying that the borrower maintains hazard insurance on the property, monitoring property tax payments to ensure the property does not develop tax liens, and dealing with any default situations including potential foreclosure if the borrower stops paying.

When This Makes Sense

Continuing to collect payments makes sense if you want or need the ongoing monthly income, you are comfortable with the administrative responsibilities of being a private lender, the note has favorable terms including a good interest rate and reliable borrower, and you do not have an immediate need for a lump sum of cash.

When This Does Not Make Sense

Holding the note may not be the best choice if you have no interest in being a private lender, you do not know the borrower and are uncomfortable relying on a stranger for payments, the note's terms are unfavorable such as a low interest rate or a problematic borrower, you need liquidity from the estate to settle debts, distribute assets to heirs, or fund other needs, or you live far from the property and cannot effectively monitor the situation.

Option 2: Sell the Note for a Lump Sum

For many heirs, selling the inherited note for cash is the most practical and appealing option. It converts an unfamiliar, illiquid asset into immediate cash that can be distributed among heirs, invested, or used for any purpose.

How It Works

Selling an inherited note follows the same process as selling any promissory note. You provide the note details and documentation to a buyer, receive a cash offer, go through due diligence, and close the transaction. The entire process typically takes two to four weeks from start to finish.

An experienced buyer like Longhorn Note Buyers can provide a cash offer within 24 hours of receiving the note details. The offer is based on the note's remaining balance, interest rate, payment history, borrower quality, property value, and LTV ratio — the same factors that determine the value of any note. For a thorough explanation of these factors, see this guide on what determines note value in Texas.

Tax Considerations for Inherited Notes

Inherited notes receive a "stepped-up basis" for tax purposes, which is a significant advantage. The tax basis of the note is adjusted to its fair market value at the date of the decedent's death rather than the original basis of the property that created the note. This stepped-up basis can substantially reduce or even eliminate the capital gains tax that would otherwise be owed when you sell the note.

For example, if the deceased sold a property with a $50,000 basis for $200,000 and carried a note for $150,000, there was $150,000 of gain embedded in the transaction. If the deceased had sold the note, they would have owed capital gains tax on the remaining deferred gain. But when you inherit the note, your basis is stepped up to the note's fair market value at the date of death. If the fair market value at death was $130,000 and you sell the note for $125,000, you may actually have a loss for tax purposes rather than a gain.

The tax treatment of inherited notes can be complex, so consulting with a tax professional who understands both installment sale rules and estate tax provisions is strongly recommended. For general tax context, see this overview of tax implications of selling a note in Texas.

When Selling Makes Sense

Selling is often the best option when the estate needs liquidity to pay debts, taxes, or administrative costs, when multiple heirs need to divide the estate and a note is difficult to split among several people, when the heirs have no interest in being private lenders, when the note's terms are unfavorable or the borrower is unreliable, or when the heirs prefer the certainty and simplicity of cash over the ongoing risk and management of a note.

Option 3: Sell a Portion of the Note

If you want some immediate cash but also value the ongoing income stream, a partial sale offers the best of both worlds. You sell a defined number of future payments to a buyer and retain the right to receive all payments after that.

This can be useful in estate situations where some heirs want cash now while others are willing to wait for ongoing income. The partial sale generates a lump sum that can be distributed to the heirs who want immediate liquidity, while the remaining payments continue flowing to the estate or to the heirs who prefer income.

Partial sales typically come with a more favorable percentage discount than full sales because the buyer is taking on a shorter period of risk. If your cash need is specific and bounded — say $40,000 to pay off estate debts — a partial sale lets you access exactly what you need without giving up the entire income stream. For a comparison of full and partial approaches, see this guide on full vs. partial note sales.

Option 4: Modify the Note Terms

In some cases, particularly where the borrower is a family member or someone with a close relationship to the deceased, modifying the note terms might make sense. You might reduce the interest rate, extend the term, adjust the payment amount, or negotiate a discounted payoff.

Modification makes sense primarily in situations where the current terms are causing hardship for the borrower and you want to maintain the relationship, or where the borrower is willing to pay off the note at a discount that is still acceptable to you. Be aware that any modification should be documented in writing and reviewed by an attorney to ensure it is legally valid and does not create unintended consequences.

Practical Steps for Heirs: A Roadmap

Regardless of which option you choose, there are practical steps you should take as soon as possible after inheriting a note.

Step 1: Locate and Secure All Documents

Find the promissory note, deed of trust, payment records, and any correspondence with the borrower. If original documents are missing, obtain copies from the county clerk, the title company, or the attorney who handled the original transaction. Secure these documents in a safe place — the original promissory note is a negotiable instrument, and losing it creates complications.

Step 2: Establish Contact With the Borrower

Notify the borrower that the note holder has passed away and provide them with updated payment instructions. This is important both for maintaining the payment stream and for establishing a line of communication. Be professional and reassuring — the borrower may be concerned about what the change in ownership means for them. Let them know that their terms remain unchanged.

Step 3: Verify the Current Status

Determine whether the borrower is current on payments, how much has been paid, what the remaining balance is, and whether there are any issues with the note or the property. Check whether property taxes are current, whether hazard insurance is in place, and whether there are any liens or issues on the title.

Step 4: Consult With Professionals

Talk to a probate attorney about your legal authority and any estate requirements that must be met before you can sell or transfer the note. Talk to a tax advisor about the stepped-up basis and the tax implications of your options. These consultations do not need to be expensive or time-consuming, but they provide clarity that prevents costly mistakes.

Step 5: Decide and Act

Based on your assessment of the note, your financial needs, and the advice of your professionals, choose the option that makes the most sense for your situation and move forward. If selling is your choice, contact a buyer like Longhorn Note Buyers to get a cash offer and begin the process. The sooner you act, the sooner you have clarity and closure.

Common Challenges When Dealing With Inherited Notes

Several challenges arise frequently with inherited notes. Being aware of them helps you navigate the process more smoothly.

Missing or Incomplete Documents

The deceased may not have kept perfect records. Payment histories may be incomplete, original documents may be filed somewhere unexpected, or important correspondence may be missing. Start by checking the most obvious places — home files, safe deposit boxes, the attorney who handled the estate — and then work outward to the county clerk's office, the title company, and any financial institutions involved. For a complete list of what you need, see this documentation guide on documents needed to sell a note in Texas.

Unresponsive or Uncooperative Borrowers

Some borrowers become difficult after the original note holder passes away. They may stop paying, dispute the terms, or simply become hard to reach. If you are dealing with an unresponsive borrower, selling the note to an experienced buyer transfers that management challenge to a professional who has the resources and legal knowledge to handle it. Even notes with difficult borrowers can be sold — the price will reflect the situation, but getting cash and moving on is often preferable to a prolonged battle with an uncooperative borrower.

Multiple Heirs With Different Preferences

When multiple heirs inherit a single note, disagreements about what to do with it are common. One heir may want to sell immediately while another wants to keep collecting payments. A partial sale can sometimes bridge this gap — selling enough payments to cash out the heirs who want liquidity while preserving the income stream for those who prefer ongoing payments.

Notes in Default

If the borrower stopped paying before or after the original note holder's death, you have inherited a non-performing note. This is a more complex situation that may involve initiating foreclosure proceedings, negotiating a workout with the borrower, or selling the note as-is to a buyer who specializes in distressed paper. Even non-performing notes have value — the property securing the note is still there, and buyers who specialize in this space know how to extract value from the situation.

Why Longhorn Note Buyers for Inherited Notes

Longhorn Note Buyers has worked with hundreds of heirs and estates across Texas, providing the patient, knowledgeable guidance that people in this situation need. They understand that selling an inherited note is often an emotional experience as well as a financial transaction, and they approach every interaction with the respect and professionalism that the situation deserves.

With over $47 million in notes purchased, an A+ BBB rating, and a 100 percent close rate, Longhorn provides the reliability and expertise that heirs need when dealing with an unfamiliar asset. Their 24-hour turnaround on offers and two-to-four-week closing timelines mean you can resolve the note quickly and move forward with settling the estate.

Ready to Sell Your Note?

If you have inherited a promissory note in Texas and you want to explore your options, the first step is a free, no-obligation conversation. Contact Longhorn Note Buyers today at (210) 828-3573 or visit longhornnotebuyers.com to get your cash offer within 24 hours. Whether you want to sell the entire note, sell a portion, or simply understand what it is worth, the Longhorn team will walk you through your options with clarity and patience.

Frequently Asked Questions

Do I need to go through probate before I can sell an inherited note?

It depends on how the note was held. If the note was in a living trust, the successor trustee can sell without probate. If the note was in the decedent's individual name, probate is typically required to establish the legal authority to transfer the note. Some states and situations allow for simplified probate procedures or small estate affidavits that can speed up the process. Consult with a probate attorney in Texas to determine the fastest path for your situation.

Will I receive the same price for an inherited note as the original holder would have?

Yes. The market value of a note is determined by its characteristics — remaining balance, interest rate, payment history, property value, and LTV ratio — not by who owns it. Whether you are the original creator of the note or an heir who inherited it yesterday, the note's investment value is the same. The buyer evaluates the asset, not the seller.

What if I inherited multiple notes from the same estate?

You can sell them individually or as a package. Some buyers offer slightly better pricing on packages of notes because the due diligence costs per note are lower when processing multiple notes simultaneously. Provide the details of all notes to the buyer and ask whether they offer package pricing.

What if the inherited note has not been paid in months?

A non-performing inherited note can still be sold, but the price will be significantly lower than a performing note because the buyer is purchasing a distressed asset that may require foreclosure to recover value. Even so, selling a non-performing note for whatever the market will pay is often better than spending your own time and money on foreclosure proceedings, especially when you did not choose to be in this situation in the first place.

Can I sell an inherited note if other heirs disagree?

This depends on your legal authority and how the note is held within the estate. If you are the sole heir or the executor with authority to sell estate assets, you can proceed. If the note is owned jointly by multiple heirs, all owners typically need to agree to the sale. If there is disagreement, a probate attorney can advise on options including partition actions, buyouts among heirs, or court-ordered sales.