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  • Randy Rodenhouse

Performing and non-performing note definitions

In the next couple of blog post, I want to talk about ways to narrow down which types of notes to buy and things to consider when buying notes. But before I do, I first want to discuss the definition of performing notes, sub-performing and non-performing notes. In subsequent newsletters we will focus more on non-performing notes and the big picture and try to determine which non-performing notes are right for you to pursue depending on whether your end game is getting the cash flow or the house itself.


  • PERFORMING NOTE: These are mortgage loans where the borrower is current, meaning they are making their monthly payments on time. In other words, a performing note is a loan being repaid according to the terms spelled out on the note.

  • SUB-PERFORMING NOTE: These are mortgage loans where the borrower is paying but inconsistently and not according to the terms of the note. They may send in payment one month and skip the next and the following month pay 2 months worth of payments to catch up. Or someone who gets behind a few months then they get back on track and paying every 30 days but are rolling 60 or 90 days late. There are many variations but these are a few examples.

  • NON-PERFORMING NOTE: These are mortgage loans where the borrower is in default and hasn't made any scheduled payments of principal or interest for a certain period of time. In traditional banking, loans are considered nonperforming if the borrower is 90 days past due. There is no standard or definition of NPLs. My definition for non-performing is when payments become overdue by more than 120 days, although actual terms vary from one note to another.

The chart above shows the details of the typical discounts and yields one can expect and the characteristics of each type. Many people start with performing notes since there is a steep learning curve for buying non-performing notes.

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