Mortgage Note Investing Terms You Should Know

A provision in a loan agreement that allows the lender to declare the entire remaining loan balance immediately due when certain conditions occur, such as a borrower default.

A document attached to a promissory note that is used to add endorsements or transfer ownership when there is not enough space on the original note.

The process of paying down a loan over time through scheduled payments that typically include both principal and interest.

The legal transfer of rights or interest in a mortgage, deed of trust, or other loan-related document from one party to another.

A larger-than-normal payment due at the end of a loan term when the regular payments have not fully paid off the outstanding balance.

The party that benefits from a deed of trust. In a real estate loan, this is generally the lender or note holder who is owed the debt.

An estimate of a property's value prepared by a licensed real estate broker or agent, often used by note investors as part of property valuation and due diligence.

The documented history of ownership and transfers associated with a property. Reviewing the chain of title can help identify ownership issues, liens, or other potential problems.

An asset pledged to secure a debt. In mortgage note investing, the underlying real estate generally serves as collateral for the loan.

A period of time during which a borrower may correct or “cure” a loan default before additional collection or legal action is taken.

An arrangement in which a borrower voluntarily transfers ownership of a property to the lender or note holder, typically as an alternative to completing a foreclosure.

A failure to meet the terms of a loan agreement, such as missing required payments or violating another obligation contained in the loan documents.

The process of researching and evaluating a note before purchasing it. This may include reviewing payment history, borrower information, property value, title, taxes, insurance, servicing records, and loan documents.

The difference between the current value of a property and the total amount of debt secured by that property.

An arrangement in which money, documents, or other assets are held by a third party until specified conditions are met. Loan servicers may also collect escrow payments for property taxes and insurance.

A lien with first priority against a property. If the property is sold or foreclosed upon, a valid first-position lien is generally paid before junior liens, subject to applicable law and other priority claims.

An agreement in which a lender or note holder temporarily reduces, pauses, or otherwise modifies required payments or collection activity while the borrower works through a financial hardship.

The legal process through which a lender or note holder may enforce its security interest in real estate after a borrower defaults, subject to state law and the loan documents.

The pledging of an asset as collateral for another obligation while the owner retains possession of the asset. A note investor, for example, may pledge a note as collateral for financing.

The ratio of the amount invested in a note to the value of the underlying property. Investors may use ITV to evaluate how much capital they have at risk relative to the property's value.

A lien that has lower priority than another lien on the same property, such as a second mortgage positioned behind a first mortgage.

A legal claim or security interest against property that may secure repayment of a debt or other obligation.

A company that administers a loan on behalf of the lender or note holder by collecting payments, maintaining records, communicating with borrowers, managing escrow, and performing other servicing activities.

The ratio of a loan balance to the value of the property securing it. For example, a $100,000 loan secured by a $200,000 property has a 50% LTV.

The date on which the remaining balance of a loan is scheduled to become fully due according to the loan agreement.

A negotiated change to the terms of an existing loan. A modification may change the interest rate, payment amount, maturity date, principal treatment, or other terms.

A security instrument that creates a lien against real estate to secure repayment of a debt represented by a promissory note.

A loan or note on which the borrower is no longer making payments according to the agreed payment schedule.

A written debt obligation that documents a borrower's promise to repay money according to specified terms, including the amount owed, interest rate, payment schedule, and maturity date.

Capital supplied by another person or entity and used to help fund an investment or transaction rather than relying entirely on the investor's own cash.

A transaction in which a note owner sells only a portion of the payment stream rather than selling the entire note. The portion sold might consist of a certain number of payments or another defined interest in the note.

A note on which the borrower is making scheduled payments according to the agreed loan terms.

A group or portfolio of multiple mortgage notes packaged together for sale, financing, management, or investment purposes.

A legal document authorizing one person or entity to act on behalf of another for specified purposes.

A fee that may be charged under certain loan agreements when a borrower pays off some or all of a loan earlier than permitted by the agreed terms. Applicability and enforceability can depend on the loan and governing law.

The amount of money borrowed or the remaining amount owed on a debt, excluding interest and certain fees.

A written promise by a borrower to repay a specific debt according to stated terms. The promissory note establishes the borrower's repayment obligation.

The process of releasing a deed of trust after the secured debt has been satisfied, returning clear title rights associated with that security instrument to the property owner.

Property owned by a lender or financial institution, generally after the lender has completed foreclosure or otherwise taken ownership of the collateral.

A note with an established history of borrower payments. Investors may review the length and consistency of that payment history when evaluating the note.

The marketplace where existing loans and mortgage notes are bought and sold after they have already been originated.

A note backed by collateral that gives the lender or note holder a security interest in an asset, such as real estate.

The ongoing administration of a loan, including collecting payments, maintaining records, sending borrower statements, handling escrow, tracking balances, and performing other required loan-management functions.

A property sale in which the sale proceeds are less than the amount owed on the secured debt and the lender agrees to accept the transaction subject to negotiated terms.

An agreement or legal arrangement that changes lien priority by placing one lien behind another lien that would otherwise have lower priority.

The legal rights of ownership in real property. A title search is commonly used to identify ownership history, liens, claims, and other matters affecting the property.

The party that holds certain legal powers under a deed of trust for the benefit of the lender or beneficiary and may perform duties such as reconveyance or foreclosure as permitted by law.

The amount of principal that remains unpaid on a loan at a particular point in time.

A negotiated strategy used to resolve a troubled or delinquent loan. A workout might involve a payment plan, modification, forbearance, settlement, deed in lieu, or another mutually acceptable solution.

The investment return generated by a note based on the amount invested and the cash flows received. A note's yield may differ from its stated interest rate when the note is purchased at a discount or premium.