Selling a Deed of Trust Note in Texas Explained

If you hold a deed of trust note in Texas and someone has told you that selling it is complicated, they were wrong. The process is well established, entirely legal, and happens more often than most people realize. Every year, note holders across the Lone Star State convert their deed of trust notes into cash for all kinds of reasons — retirement planning, debt consolidation, estate simplification, medical expenses, or simply because they would rather have a lump sum today than wait years for a stream of monthly payments.

But before you sell anything, you need to understand what you actually own and how it differs from other types of real estate paper. Texas is a deed of trust state, which means the instrument that secures a real estate loan works a bit differently here than in states that use traditional mortgages. Those differences matter when it comes to selling your note, and understanding them puts you in a stronger position to negotiate and get a fair price.

This guide breaks down everything you need to know about selling a deed of trust note in Texas — from the basics of how these instruments work to the step-by-step process of finding a buyer and closing the deal.

What Is a Deed of Trust Note in Texas?

In Texas, when someone borrows money to buy real estate — or when a property seller provides owner financing — two documents are typically created. The first is the promissory note, which is the borrower's written promise to repay the loan under specific terms including the interest rate, payment schedule, and maturity date. The second is the deed of trust, which is the security instrument that pledges the property as collateral for the loan.

How a Deed of Trust Differs From a Mortgage

The critical distinction between a deed of trust and a traditional mortgage comes down to how many parties are involved and what happens in the event of default. A mortgage involves two parties: the borrower and the lender. If the borrower defaults, the lender must go through judicial foreclosure, which means filing a lawsuit and getting a court order before they can sell the property.

A deed of trust, on the other hand, involves three parties: the borrower (trustor), the lender (beneficiary), and a neutral third party called the trustee. The trustee holds legal title to the property until the loan is paid off. If the borrower defaults, the trustee can conduct a non-judicial foreclosure under Texas law, which is significantly faster and less expensive than the court-based process used in mortgage states.

This distinction is actually good news for note sellers. Because Texas deed of trust notes come with the power of non-judicial foreclosure, they are generally more attractive to buyers. The buyer knows that if something goes wrong with the borrower, they have a faster and cheaper path to recovering their investment through the property.

What You Actually Own as a Note Holder

When you hold a deed of trust note, you own the right to receive all future payments from the borrower according to the terms of the promissory note. You are also the beneficiary of the deed of trust, which means the property serves as your collateral. These rights are transferable, which is exactly what makes selling your note possible.

When you sell the note, you assign both the promissory note and your beneficial interest in the deed of trust to the buyer. The buyer steps into your shoes and becomes the new beneficiary. The borrower's obligations do not change at all — same payment, same rate, same terms. The only difference is who receives the checks.

Why Note Holders in Texas Decide to Sell

People sell deed of trust notes for as many reasons as there are note holders. But a few scenarios come up consistently.

Lump Sum Needs

Life does not always cooperate with a 15 or 30 year payment schedule. When a note holder faces a major expense — whether it is a medical emergency, a business opportunity, or a down payment on another property — the ability to convert future payments into immediate cash can be invaluable. A note paying $800 per month might have $90,000 in remaining payments, but that money is locked up in time. Selling the note unlocks it.

Management Fatigue

Being a private lender is not passive income in the way many people imagine. You have to track payments, send reminders when someone is late, maintain records, verify insurance on the property, and deal with the occasional headache when a borrower's check bounces or they start making partial payments. After several years of this, many note holders decide they would rather have the cash and let someone else handle the administrative burden. If this resonates with you, you are not alone — plenty of note holders reach a point where they are simply tired of collecting payments.

Risk Reduction

Every note carries some degree of risk. The borrower could stop paying, the property could lose value, or changes in the economy could make the note's fixed interest rate less attractive. Selling your note transfers all of these risks to the buyer. You get your cash, and the buyer assumes responsibility for whatever happens going forward.

Estate Simplification

Promissory notes can complicate estate planning. If the note holder passes away, the note becomes part of the estate and must be managed by heirs or an executor who may have no interest in or experience with private lending. Selling the note while you are alive simplifies things enormously and puts liquid assets in place of a complex financial instrument. For more on how this works, see this guide on estate planning with promissory notes in Texas.

How to Sell a Deed of Trust Note in Texas: Step by Step

The process of selling a deed of trust note is methodical and predictable. Here is what to expect from start to finish.

Step 1: Gather Your Documents

Before you contact any buyer, pull together the key documents related to your note. At a minimum, you will need the original promissory note, the recorded deed of trust, a record of all payments received, and any correspondence with the borrower regarding modifications or agreements. Having these ready demonstrates that you are organized and serious, and it allows a buyer to give you an accurate quote quickly.

If you are unsure about what is needed, this resource on the documents required to sell a note in Texas covers everything in detail.

Step 2: Get a Cash Offer

Contact a reputable note buyer and share the details of your note. The critical numbers are the current unpaid balance, the interest rate, the monthly payment amount, the number of remaining payments, the borrower's payment history, and the estimated current value of the property.

An experienced buyer can evaluate these factors and give you a preliminary offer quickly. Longhorn Note Buyers, for example, provides cash offers within 24 hours. This initial quote gives you a baseline for comparison and a clear sense of what the market will pay for your specific note.

Step 3: Review and Accept the Offer

Take the time to review the offer and make sure you understand the numbers. Ask the buyer to explain how they arrived at their price — a good buyer will be transparent about the factors that influenced their valuation. If you are getting multiple offers from different buyers, compare not just the price but also the buyer's reputation, their close rate, and their ability to fund the deal without delays.

Step 4: Due Diligence Period

After you accept an offer, the buyer conducts their due diligence. This typically involves verifying the documents you provided, ordering a title search to confirm there are no liens or encumbrances that were not disclosed, appraising or evaluating the property, and confirming the borrower's payment record. This process usually takes one to three weeks depending on the complexity of the note and the responsiveness of third parties like title companies.

Step 5: Closing and Funding

Once due diligence is complete, the buyer prepares the closing documents. The central document is the assignment of the deed of trust, which transfers your beneficial interest to the buyer, along with an endorsement or assignment of the promissory note itself. These documents are signed, often through a closing agent or title company, and recorded with the county clerk's office.

After recording, the buyer wires the purchase price to your account or provides a cashier's check. The borrower receives written notification that their payments should now be directed to the new note holder. The entire process from offer to funding typically takes two to four weeks.

Factors That Affect the Price of Your Deed of Trust Note

Understanding what drives the pricing of your note helps you set realistic expectations and identify ways to maximize your payout.

The Remaining Balance and Payment Schedule

The larger the remaining balance, the more potential value your note holds — but size alone does not determine the price. A note with a $200,000 balance at a low interest rate with 28 years remaining will be priced very differently than a $200,000 balance at a competitive rate with only 5 years left. Buyers look at the entire cash flow picture, not just the headline number.

Borrower Quality and Payment History

A borrower who has made 36 consecutive on-time payments presents a very different risk profile than one who has missed three of the last six payments. The length and consistency of the payment history — known as seasoning — is one of the most influential factors in note pricing. The more seasoned the note, the more confident the buyer can be that the borrower will continue performing, and the higher the price you can command.

Property Characteristics

Since the property is the collateral backing the note, its value, condition, and location matter significantly. A deed of trust note secured by a well-maintained single-family home in a growing suburb of Dallas will attract a higher price than one secured by a vacant rural lot two hours from the nearest city. Buyers assess the property because it represents their fallback position — if the borrower stops paying, the property is what they would ultimately recover.

The Loan-to-Value Ratio

LTV is the remaining note balance divided by the current property value. A low LTV means there is substantial equity in the property, which provides a larger cushion of protection for the buyer. Most buyers prefer LTV ratios under 80 percent, and notes with LTV under 65 percent are considered particularly strong. If property values in your area have appreciated since you created the note, your LTV may be lower than you think, which works in your favor. For a broader look at pricing factors, check out this overview of what determines note value in Texas.

Interest Rate

Higher interest rates make a note more valuable because they generate more income for the buyer over the life of the note. In a rising rate environment, older notes with lower rates may be less attractive. Conversely, if market rates have dropped since you created your note, your above-market rate becomes a selling point.

Full Sale vs. Partial Sale for Deed of Trust Notes

You are not required to sell your entire note. Depending on your financial needs, a partial sale might be the better strategy.

A full sale means you transfer all your rights and receive a single lump sum. You are completely done with the note, and the buyer collects all remaining payments. This is the right choice if you want maximum cash now and do not want any ongoing involvement.

A partial sale means you sell a defined number of future payments while retaining the rights to payments beyond that number. For example, you could sell the next 48 payments while keeping everything after that. This gives you a chunk of cash now while preserving future income. The discount on a partial sale is typically more favorable in percentage terms because the buyer is taking on less risk over a shorter period.

Neither approach is universally better — it depends entirely on your situation. If you need help thinking through the comparison, this analysis of full vs. partial note sales lays out the considerations in detail.

What Makes a Good Note Buyer in Texas

Not all note buyers are created equal, and choosing the right one can make the difference between a smooth transaction and a frustrating experience. Here are the qualities that separate legitimate, professional buyers from the rest.

Track Record and Reputation

Look for a buyer with a verifiable history of closed transactions. How long have they been in business? How many notes have they purchased? Do they have reviews or testimonials from previous sellers? A company like Longhorn Note Buyers, which has been buying notes for decades and has purchased over $47 million in paper, brings a level of credibility and financial stability that newer or smaller operators simply cannot match.

Close Rate

A quote means nothing if the buyer cannot close. Some buyers make aggressive offers to hook sellers and then re-trade the price during due diligence — finding reasons to lower their offer after you have already committed. A high close rate signals integrity. When a buyer quotes you a number and closes at that number consistently, you know you are dealing with a professional.

Speed and Communication

The best buyers respect your time. They provide quotes quickly, communicate clearly throughout the process, and do not leave you wondering what is happening for days at a stretch. If a buyer takes two weeks just to give you a preliminary number, imagine how long the actual closing will take.

Transparency

A trustworthy buyer will explain their offer clearly. They will tell you why the price is what it is, what factors are working in your favor, and what, if anything, is pulling the value down. They will not pressure you to make a decision before you are ready, and they will not use confusing jargon to obscure the terms.

Ready to Sell Your Note?

Selling a deed of trust note in Texas does not have to be stressful or confusing. With the right buyer and a clear understanding of the process, you can convert your note into cash quickly and confidently. Contact Longhorn Note Buyers today at (210) 828-3573 or visit longhornnotebuyers.com to get your free, no-obligation cash offer within 24 hours. With over 40 years of experience and an A+ BBB rating, Longhorn has the expertise and the capital to make you a fair offer and close the deal without hassle.

Frequently Asked Questions

Is a deed of trust the same thing as a mortgage in Texas?

Not exactly. Both serve the same basic purpose — securing a loan with real estate — but they work differently. A deed of trust involves three parties and allows for non-judicial foreclosure in Texas, which is faster and less expensive than the court process required with a traditional mortgage. For sellers, this distinction is actually advantageous because it makes Texas deed of trust notes more attractive to buyers.

Can I sell a deed of trust note if the borrower is currently behind on payments?

Yes. Notes with delinquent borrowers can still be sold, but the price will be lower to account for the risk. Buyers factor in the likelihood of the borrower catching up, the cost of potential foreclosure, and the current property value when making offers on non-performing or sub-performing notes.

How much less than face value will I receive for my note?

The discount varies based on multiple factors including interest rate, remaining term, payment history, borrower creditworthiness, property value, and LTV ratio. In general, notes with strong fundamentals — high interest rates, long payment histories, low LTV ratios, and good properties — sell at smaller discounts. Every note is unique, so the best way to find out is to request a specific quote based on your note's characteristics.

Do I need the borrower's permission to sell my deed of trust note?

No. As the holder of the note, you have the legal right to assign or sell it without the borrower's consent. The borrower will be notified of the change in ownership after the sale closes, but their permission is not required for the transaction to proceed.

What happens to the deed of trust when I sell the note?

When you sell the note, you also assign your beneficial interest in the deed of trust to the buyer. The buyer becomes the new beneficiary, which means they hold the security interest in the property. This assignment is recorded with the county clerk's office, creating a public record of the transfer.