LOI (Letter of Intent)

LOI (Letter of Intent) is a formal document submitted by a mortgage note buyer to a seller that outlines the proposed terms of a loan purchase — including price, timeline, contingencies, and exclusivity provisions. While typically non-binding, the LOI signals serious intent and establishes the framework under which both parties will proceed through due diligence and toward a binding loan purchase sale agreement (LPSA).

Purpose of the LOI

The LOI serves several critical functions in a note transaction:

• Communicates pricing — Your proposed purchase price, expressed as a dollar amount or percentage of UPB, tells the seller exactly where you stand.
• Defines the timeline — The LOI specifies the due diligence period (typically 30 days) and the expected closing date.
• Establishes exclusivity — A well-drafted LOI includes a clause preventing the seller from marketing or selling the loan to another buyer while you complete your research.
• Documents contingencies — The conditions under which you can renegotiate or walk away are spelled out, protecting your capital before the binding contract is signed.

What an LOI Should Include

When to Use a Formal LOI

The level of formality required depends on the type of seller:

Professional / Competitive Sellers

When bidding on assets from a professional seller who distributes tapes to multiple buyers, a formal LOI is often unnecessary. These sellers understand secondary market conventions. Most buyers simply submit a spreadsheet with loan-level pricing and include any caveats in the body of an email. The standard indicative bid process — roughly seven days to submit offers, then 30 days of due diligence for winning bids — replaces the need for a formal document.

Exclusive / Unfamiliar Sellers

When working with a bank, credit union, or private lender who has never sold loans on the secondary market, a formal LOI becomes essential. This document spells out everything the seller needs to understand about a process they have never been through — pricing methodology, due diligence expectations, document delivery requirements, and the contingencies that protect both sides. The formality builds trust and provides the seller with a clear roadmap.

LOI vs. LPSA

The LOI and the LPSA serve fundamentally different purposes:

The LOI initiates the deal. The LPSA closes it. Serious buyers treat the LOI as a professional commitment — submitting one and then failing to follow through damages your reputation and erodes the seller relationships that drive future deal flow.

Common Mistakes

• Omitting the exclusivity clause — Without it, you risk spending thousands on BPOs, title searches, and credit pulls while the seller entertains competing offers.
• Leading with your highest price — Especially with exclusive sellers unfamiliar with the secondary market, start conservative and leave room to over-deliver as due diligence progresses.
• Skipping contingencies to appear aggressive — Removing your due diligence contingency does not make you competitive; it eliminates your ability to adjust pricing if the data is wrong.
• Not including proof of funds — An offer without demonstrated capital is an offer without credibility, particularly with new seller relationships.
• Treating the LOI as optional — While the document is non-binding, the commitment it represents is real. Follow through on every LOI you submit or risk losing deal flow permanently.