You are holding a non-performing note. The borrower has stopped paying. And now you are asking the most important question: what is this note actually worth?
The honest answer is — it depends. However, that is not a cop-out. There are specific, measurable factors that determine the value of a non-performing note. Understanding those factors puts you in a much stronger position when you decide to sell.
This article breaks down exactly how non-performing notes are valued, what affects your offer, and what you can realistically expect when you go to market.
What is a non-performing note?
A non-performing note is a real estate note where the borrower has stopped making payments. Most buyers define non-performing as 90 or more days past due. However, it also includes notes where the borrower is in formal default, has received a notice of default, or where foreclosure proceedings have already started.
Non-performing notes are sometimes called defaulted notes or distressed notes. All three terms refer to the same situation — a borrower who is not paying and a note holder who needs a solution.
Do non-performing notes have real value?
Yes — absolutely. This surprises many note holders. They assume a defaulted note is worthless because the borrower is not paying. However, that assumption is wrong.
The value of a non-performing note is not based on the borrower’s payment behavior. It is based primarily on the real property securing the note. As long as there is equity in the property, there is value in the note. Furthermore, professional note buyers have the tools and experience to resolve defaults — and they pay real money to acquire that opportunity.
Therefore, a non-performing note is a distressed asset — not a dead one.
How is a non-performing note valued?
Note buyers use a specific set of criteria to evaluate non-performing notes. Each factor either increases or decreases the offer you receive. Here is exactly what they look at.
Loan-to-value ratio
The loan-to-value ratio — or LTV — is the single most important pricing factor. It compares the outstanding loan balance to the current market value of the property.
For example, if the property is worth $200,000 and the remaining loan balance is $120,000, the LTV is 60 percent. That means there is $80,000 of equity in the property. As a result, the buyer has strong collateral protection and will pay more for that note.
On the other hand, if the loan balance is $190,000 on a $200,000 property, the LTV is 95 percent. There is very little equity. The buyer takes on significantly more risk. Consequently, the offer will be lower.
A general rule: the lower the LTV, the stronger your offer will be.
The state’s foreclosure timeline
This factor has a bigger impact on pricing than most sellers expect. Every state handles foreclosure differently. In judicial foreclosure states, a court must approve the foreclosure process. That takes time — and time costs money.
States like New York, New Jersey, Florida, Illinois, and Ohio are known for foreclosure timelines of two to four years. The longer that process takes, the more it costs the buyer in legal fees, carrying costs, and lost time. Therefore, that cost is reflected directly in the offer.
Non-judicial states like Texas, Georgia, and Missouri move much faster — sometimes in as little as 60 to 90 days. Consequently, notes secured by properties in those states typically receive stronger offers.
Property type and condition
Single-family residential properties produce the strongest offers. They are the most liquid asset class and the easiest to sell or rent after resolution. Additionally, they attract the widest pool of buyers in the secondary market.
Commercial properties, vacant land, and multi-family assets are also purchased. However, they carry additional complexity and liquidity risk. As a result, they are typically priced at a deeper discount than residential notes.
Property condition matters too. A well-maintained home protects the collateral value. A neglected or damaged property reduces it. Furthermore, a vacant property is more concerning to buyers than one that is occupied — even by a non-paying borrower.
Stage of default
Where is the borrower in the default process? This matters more than most sellers realize.
A note that is 90 days past due is early in the process. A note where foreclosure has already been filed — and is months into proceedings — gives the buyer more certainty about the resolution path. In some cases, being further along in foreclosure actually strengthens your position as a seller. The buyer inherits a process that is already underway rather than starting from scratch.
Remaining balance
Larger unpaid principal balances attract more buyer interest. A note with a $300,000 remaining balance will generate stronger competition among buyers than one with a $30,000 balance. However, smaller balance notes are still purchased regularly — especially when the LTV is strong and the property is residential.
Original interest rate
The interest rate on the note plays a role in pricing, particularly if the note re-performs after the buyer acquires it. A higher interest rate means more yield potential for the buyer. Therefore, notes with above-market interest rates can command stronger offers even in a non-performing state.
Borrower equity and motivation
Does the borrower have equity in the property? If so, they have a financial incentive to resolve the default — through a refinance, a sale, or a repayment plan. A borrower with equity is more likely to cure the default or cooperate with a resolution. As a result, buyers pay more for notes where the borrower has something to protect.
What discount should you expect?
Non-performing notes sell at a discount to face value. That is the reality, and it is important to understand it clearly before you go to market.
The discount exists because the buyer is taking on risk. They are funding the legal process, managing the resolution, and waiting for the outcome — none of which is guaranteed. The discount compensates them for that risk and effort.
Typical offers on non-performing notes range from 40 to 70 cents on the dollar. However, strong deals — low LTV, fast foreclosure state, residential property, significant equity — can come in higher. Weaker deals — high LTV, slow foreclosure state, commercial or vacant land — will come in lower.
Here is a simple example. Say you have a non-performing note with a $150,000 unpaid balance. The property is a single-family home worth $220,000 in Texas. The LTV is roughly 68 percent. In that scenario, a strong offer might come in at 65 to 75 cents on the dollar — meaning $97,500 to $112,500 in cash.
Compare that to holding the note through foreclosure. Even in a fast state, you might spend $8,000 to $15,000 in legal fees. You wait six to twelve months. And the outcome is never fully certain. Furthermore, the property may deteriorate in value while you wait.
For many note holders, the math strongly favors selling.
Selling vs. holding — a direct comparison
Cash in hand
Selling gives you a lump sum now. Holding means waiting months or years for a foreclosure outcome — with no guarantee of full recovery.
Out-of-pocket costs
Selling costs you nothing. Holding means attorney fees, court costs, and property maintenance throughout the foreclosure process.
Risk
Selling transfers all risk to the buyer at closing. Holding means you carry default risk, collateral deterioration risk, and foreclosure outcome risk the entire time.
Timeline
Selling closes in two to four weeks. Holding can take one to four years depending on the state.
Effort
Selling requires submitting documents and signing at closing. Holding requires ongoing borrower management, legal coordination, and court involvement.
What types of non-performing notes does TrustedNoteBuyer.com buy?
TrustedNoteBuyer.com purchases all types of non-performing real estate notes — nationwide, with no geographic restrictions.
We buy residential mortgage notes, commercial notes, seller carryback notes, owner-financed notes, land contracts, and deeds of trust. We buy single notes and entire portfolios. Additionally, we buy notes at every stage of default — from the first missed payment through active foreclosure proceedings.
There are no upfront fees. There is no obligation to accept our offer. And we work directly with you — no brokers, no middlemen, no delays.
Frequently asked questions
How long does it take to get an offer on my non-performing note?
In most cases, you will receive a written offer within a few business days of submitting your note details.
Do I need to complete foreclosure before selling?
No. You can sell your note at any stage of the default process — including before foreclosure is filed or while it is already in progress.
What if my note has a very high LTV?
High LTV notes are more challenging to price, but they are still purchased in many cases. The offer will reflect the additional risk. Contact TrustedNoteBuyer.com to discuss your specific situation.
Can I sell a non-performing note portfolio?
Yes. TrustedNoteBuyer.com purchases non-performing note portfolios of all sizes — from two notes to hundreds. Additionally, we buy mixed portfolios containing both performing and non-performing notes.
What documents do I need to sell my non-performing note?
You will typically need the original promissory note, the deed of trust or mortgage, a payment history, and any notices of default or foreclosure filings. If documents are missing, we will work with you to resolve it.
Is the offer I receive negotiable?
Every offer is based on a thorough evaluation of your specific note. However, if you have additional information that affects the value — such as a recent appraisal or updated borrower information — we are always willing to review it.
The bottom line
A non-performing note is worth real money. However, the exact amount depends on the LTV, the state, the property type, the stage of default, and several other factors. The best way to find out what your note is worth is to get a real offer from a direct buyer.
TrustedNoteBuyer.com buys non-performing real estate notes across all 50 states. No fees. No obligation. Fast offers and faster closings.
Find out what your non-performing note is worth. Get your free offer at TrustedNoteBuyer.com today.