A performing note has a borrower who consistently pays on time (typically 12+ months of verified seasoning) and commands the highest secondary market value. A non-performing note is 60–90+ days delinquent or in legal default; its value is determined by the liquidation value of the underlying real estate, foreclosure timeframes, and loan restructuring potential.
Predictable Cash Flow
Buyers purchase performing notes as fixed-income investments similar to bonds, but secured by real property.
- Pricing: Smallest discount to unpaid principal balance.
- Buyer Pool: Large network of private and institutional buyers.
- Sale Options: Eligible for both full buyout and partial note sales.
- Turnaround: Fastest due diligence and closing timeline.
Distressed Collateral Workout
Buyers purchase non-performing notes to either re-perform the debt through loan modification or acquire the underlying property through foreclosure.
- Pricing: Steeper discount based on equity and legal costs.
- Buyer Pool: Specialized distressed-debt and workout funds.
- Sale Options: Typically full sale only.
- Benefit to Seller: Immediate exit without paying foreclosure attorneys.
Why Private Note Holders Sell Non-Performing Paper
When a borrower stops paying, private sellers face an uncomfortable reality: legal fees, retaining a foreclosure attorney, advancing unpaid real estate taxes, maintaining hazard insurance, and potentially managing an eviction.
Foreclosure litigation can cost $3,000 to $10,000+ in out-of-pocket legal expenses.
Eliminate the need to advance unpaid property taxes and force-placed insurance.
A sale can provide a defined exit and cash now rather than waiting 6–18 months for a foreclosure sale. Any cash amount is subject to buyer review of the collateral and loan file, not a guaranteed price.
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