Performing Note Buyers

What Is a Performing Note?

A performing note is a mortgage note or promissory note where the borrower is making payments on time according to the original terms. The borrower is current — not late, not in default, and not in forbearance. Performing notes are the gold standard of the secondary note market because they represent a reliable, predictable income stream backed by real property.

Performing vs. Non-Performing Notes

The distinction matters significantly for pricing:

• Performing notes sell at 80-95% of the unpaid balance. Pricing is based on cash flow yield — interest rate, payment amount, and remaining term.
• Non-performing notes sell at 30-70% of the unpaid balance. Pricing is based on property equity and recovery potential, not cash flow.
• Sub-performing notes (borrower is late but not yet in default) fall between the two, typically 60-80% depending on how delinquent.

What Makes a Performing Note More Valuable?

• Seasoning: The longer the payment history, the more valuable the note. 24+ months of on-time payments is ideal. This is called "seasoning" — it proves the borrower is committed to the property.
• Interest rate: Higher interest rates generate more cash flow per dollar invested. A note at 9% is worth more than one at 5%.
• Equity (LTV): Lower loan-to-value means more equity cushion. LTV under 70% gets the best pricing.
• Property type: Owner-occupied single-family homes are the safest and command the best prices.
• Documentation: Complete files with original note, recorded mortgage/deed of trust, closing statement, and payment records.
• Amortization: Fully amortizing notes are preferred over interest-only or balloon structures.

Frequently Asked Questions

What is a performing note?

A performing note is a mortgage note where the borrower is making payments on time. It is the most valuable type of note because the predictable cash flow and demonstrated borrower reliability reduce risk for investors.

How much can I sell a performing note for?

First-lien performing notes typically sell for 80-95% of the unpaid balance. Notes with 24+ months of clean payments, strong equity, and higher interest rates command the top of that range.

What is the difference between performing and non-performing?

Performing notes have current payments. Non-performing notes have borrowers who have stopped paying (typically 90+ days late). Performing notes sell at much higher percentages because the risk is lower.

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