NOTE VALUATIONS AND APPRAISALS
Following is a list of a few of the many reasons why you'd want to get a Note Valuation or Appraisal performed by a Qualified Independent Third Party:
- To value Notes during Estate Planning or Probate
- To determine current market value for IRA conversion or distribution
- Annual valuation of Notes in a "Self-Directed" IRA
- Annual valuation of Notes in a "Checkbook" IRA
- Annual valuation of Notes in a Roth or Traditional IRA; a Pension Plan; 401(k); and other Retirement Plans
The IRS generally requires that all IRA assets, including those that are not publicly traded, be valued using a fair market value standard (as opposed to liquidation or other value), and the fair market value of IRA and qualified plan assets must be reported on Form 5498 (IRA Contribution Information) and Form 5500 (Annual Return/Report of Employee Benefit Plan), as applicable. In addition, the IRS requires that this value be supported by audited financial statements, valuations by third-party experts, or contracts or agreements related to an investment, as applicable.
Following is a list of a few of the many items we considered when determining the value of a Note:
- Whether it's Performing or Non-Performing
- The terms of the Note
- The credit worthiness of the borrower
- The payment history
- The interest rate
- What type of collateral, if any, is used to secure the note
- The value, location and condition of the underlying collateral (such as real estate)
- Whether there are any liens which take priority (i.e. a senior mortgage, property tax liens, judgment liens, etc)
- Balances due on senior liens
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Following are some of the questions we get from people who are new to notes.
What is a "Note"? "Note" can be used to describe many different types of instruments: Promissory Note, Home Equity Line of Credit, Agreement, 1st Mortgage, 2nd Mortgage, Real Estate Note and Seller Carryback Note are some of the words usually used to refer to a loan which is secured by real estate - meaning that if the borrower didn't pay as agreed the holder of the note could take back the real estate as collateral. Most of these "notes" have a corresponding Deed of Trust or Mortgage which has been filed in the county where the real estate is located.
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Business Note, Commercial Note, Auto Loan, Personal Note, Personal Loan, and Family Loan are some of the words usually used to refer to a loan which does not have Real Estate as security. Sometimes the loan may have some type of collateral used as security - such as equipment, cars, furniture and fixtures - and sometimes there is nothing securing the loan except the borrower's promise to pay.
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What is a "Non-Performing" Note? Most notes have a regular payment schedule (i.e monthly, quarterly, etc.). If a borrower isn't making the payments, the note is considered Non-Performing or Defaulted. Conversely, if the borrower is making their payments as agreed, the note is Performing.
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For more detailed information, please see our FAQ's page or contact us today at Info@OrangeStreetFinancial.com for a free consultation.