Non-performing notes (NPNs) offer investors a unique opportunity to acquire real estate debt at a discount, potentially yielding substantial profits. By purchasing these distressed mortgage loans, investors can either work with borrowers to modify the terms or take control of the underlying property. However, finding quality non-performing notes requires knowing where to look and how to assess their potential.

In this guide, we’ll explore the best places to find non-performing notes for sale, key factors to consider before purchasing, and strategies to maximize your returns in the distressed debt market.

Let’s dive on in!

What Are Non-Performing Notes?

A non-performing note is a mortgage where the borrower has fallen behind on payments—typically by 90 days or more. Banks, lenders, and financial institutions often seek to offload these troubled loans to minimize losses and free up capital. Investors purchase these notes at steep discounts, allowing them to:

• Renegotiate the terms with the borrower to create a performing asset
• Pursue foreclosure and take ownership of the property
• Sell the note to another investor at a profit

This strategy allows investors to capitalize on distressed assets while potentially helping struggling homeowners find a resolution.

 

Where to Find Non-Performing Notes for Sale

 

1. Banks and Credit Unions

Many financial institutions regularly sell non-performing notes to clean up their balance sheets. These include:

• Big Banks: Large national banks often bundle non-performing loans into bulk sales, requiring substantial capital to purchase.
• Regional & Community Banks: Smaller banks and credit unions are more likely to negotiate directly with investors on smaller loan pools or one-off notes.
• Special Assets Departments: Within a bank, the “special assets” or “loss mitigation” department typically handles distressed loan sales. Building relationships with these departments can provide access to off-market deals.

💡 Tip: Contact the bank’s asset manager directly to inquire about their non-performing loan inventory. Persistence and networking are key!

 

2. Hedge Funds & Private Equity Firms

Hedge funds and institutional investors often purchase large portfolios of non-performing notes from banks. While they usually hold onto their most profitable assets, they frequently sell off smaller or less desirable notes to individual investors.

Pros: May offer deeply discounted deals that banks won’t
Cons: Requires established relationships and a track record to gain access

💡 Tip: Attend industry conferences or reach out through LinkedIn to connect with professionals managing these portfolios.

 

3. Mortgage Brokers & Loan Servicers

Some mortgage brokers and loan servicing companies specialize in buying and selling distressed debt. They often work directly with banks, funds, and lenders to facilitate note transactions.

Wholesale Note Sellers: Brokers who source non-performing notes from multiple institutions and resell them to investors.
Loan Servicing Companies: Manage loans on behalf of lenders and may have insight into potential note sales.

💡 Tip: Look for brokers with experience in the note industry and verify their track record before committing to a deal.

 

4. Online Marketplaces

In recent years, online platforms have made it easier for investors to buy and sell non-performing notes. Some of the most popular marketplaces include:

• Paperstac – A user-friendly platform that connects buyers and sellers of performing and non-performing notes.
• LoanMLS – A marketplace for mortgage notes, including distressed debt.
• DebtX – Primarily geared toward institutional investors but occasionally offers deals for smaller players.

💡 Tip: Verify the seller’s credibility and conduct thorough due diligence before purchasing a note online.

 

5. Auctions & Government Sales

Non-performing notes are frequently sold at foreclosure and tax lien auctions. Government agencies and large financial institutions use these auctions to dispose of distressed debt.

FDIC Loan Sales: The Federal Deposit Insurance Corporation occasionally auctions off distressed assets from failed banks.
County Tax Lien & Foreclosure Auctions: These can sometimes include non-performing loans along with real estate.

💡 Tip: Research auction schedules and registration requirements in advance. Some auctions require proof of funds or pre-qualification.

 

6. Networking & Off-Market Deals

Many of the best non-performing note deals never hit the open market. Instead, they are secured through direct relationships, referrals, and networking within the note investing community.

Real Estate & Note Investing Groups: Join organizations like NoteSchool or local real estate investment associations (REIAs).
Private Sellers: Some individual investors sell non-performing notes when restructuring their portfolios.

💡 Tip: Build relationships with experienced note investors who may offer mentorship or deal-sharing opportunities. 

Ready to achieve success in note investing? The best time to start is now! Take advantage of the resources below to learn from industry experts, connect with a thriving community, and unlock your full potential in creative real estate financing. Your journey toward financial freedom begins today—don’t wait to take the next step! Whenever you’re ready… here are 4 ways we can help you start your journey into note investing: