Performing Notes

11 Replies

I have a few questions in regards to purchasing a Performing Note, What does UPB stand for? It is a percentage down on the actual asking price of the Performing Note? Also if a percentage is not being requested, are you going to have to pay the full principal that is left on the Performing Note already in order to claim ownership of it? Or do you just put a certain amount down on the current principle loan until it is paid in full. My last question is do you have to pay all other fees on the performing note before you can claim ownership of it. For example, Foreclosure fees, keys, Deed of Title, etc. Or is this what will be paid for to you?

UPB Is Unpaid Balance

Offers will usually state the original loan amount and the UPB. Discounted notes are often offered as a % of UPB.

You can pay whatever you and the seller agree to, once you won the note that gives you the rights to collect future payment or foreclose if the borrower stops paying.

ON a performing note there should not be any foreclosure fees. As far as recording fees Escro fees etc. those can be negotiated between you and the seller.

I would recommend going to the FCIExchange website and looking at some of the perfuming and non-performing notes offered there, it will give you an idea how things are priced and see some real world examples.

Hi @Jeremy Sanders

UPB = Unpaid Principal Balance.

This means that UPB does not include any unpaid interest, late fees, etc. that would apply if you were buying a non-performing note.

As far as your purchase price, no you do not need to pay the full UPB in order to "claim ownership" nor do you pay a down-payment the way you would if you were buying the property itself. Remember that with notes you are NOT buying a house, business, etc. You are essentially taking over as the lender. Then the homeowner (if you're dealing in residential notes) will start paying YOU their mortgage loan each month. You're not paying down the note. The homeowner does.

You can make an offer of any amount you like, just like Bob said above, but of course there's no guarantee that your offer will be accepted. Many times offers are looked at in terms of the percentage of the UPB and that percentage will vary from note to note.

Let's say you bought a note that was originally for $150K. The homeowner paid off $50K of principal. That makes the UPB $100K. Now you come along and make an offer of let's say $60K to the current owner of the note (that's 60% of the UPB). They turn you down, but eventually accept an offer for $65K. You've now paid $65,000 in one lump sum for the right to collect $100,000 from the homeowner over time.

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Are Unpaid Balances considered a danger zone when investing in performing notes. Also, could someone be able to explain the exit strategies better for me. I think I have an idea. But I want to be sure im on the right track. Lets say for example the time frame for sale of note is 30 (Days) and it has a principle balance percent of 80.0, the gross amount is ($4,800.00), Net Amnt Recieved is (-$1,200.00), ROI is (-20.0%), and APR is (-243.33%). What does this actually mean? Does it mean that I will need to sale in 30 days in order to recieve a good profit? Also should I run for the hills per say, if the note has a huge amount of money due to unpaid interest?

@Jeremy Sanders To be direct, you need to stay away from Notes, until you've learned and understand more. I have no idea what he numbers mean you posted, but as to your last question; if the note is Performing, there is no unpaid interest, it would be a Non Performing Note. When you buy a Performing note, you're simply investing for supposedly long term income stream, at a certain yield, determined by your purchase price. There is no reason to think you can sell it for a profit. I just realized you don't understand yet what UPB is; it's Not unpaid interest, it's the current Principal balance, which is the basis for what you're buying, along with the interest.

@Wayne Brooks, I do apologize if my explanation was alittle difficult to understand. Hopefully this image would help alot better towards the example I was tring to give.

I stayed out of this as long as I could stand to, LOL

What you're looking at is marketing stuff based on an opinion that may or may not be valid, it's not even worth looking at. I also don't want to know where you got it.

You do not buy notes to become the owner of the property. Your initial thinking is even under misconceptions.

You don't even have "exit strategies" with a performing note except to sell it or to refinance it. You're buying it for the annuity income.

There are tons of threads here on notes, you need to start reading and digging to learn. Understand that there are probably 5,000 people here or that have been here interested in notes. Each one asked a question. Many of those asked the same question.

I'll jump in when there is a question that is beyond the basic core level of understanding the note business. I also jump in when there is bad information or some junk going on to clarify. I'm not going to repeat myself 5001 times due to the lack of effort on the part of new folks, I suppose they don't see that as rude to impose on those who know the topic. You can enter key words in the search box like "UBP" and get pages of threads discussing it. It would be different if there were no ability to search, but there is.

Not to discourage asking questions, but do some homework besides reading guru crap before asking, make an effort to see if there is an existing thread on a topic that answers the question, if it's not understood, form the question so that it can show what you did find or where some effort was put in, be as specific as you can. Asking a question like "How do I make a loan?" will be totally ignored by those who know what they are talking about, I would.

You need to do some studying before trying to look at the pot of gold, most of those pots have holes in the bottom.

Nothing personal, not blowing off at you, just that you're way in over your head right now and you need to back up, regroup, rethink, study and begin at the beginning. :)

Originally posted by @Jeremy Sanders :
Are Unpaid Balances considered a danger zone when investing in performing notes. Also, could someone be able to explain the exit strategies better for me. I think I have an idea. But I want to be sure im on the right track. Lets say for example the time frame for sale of note is 30 (Days) and it has a principle balance percent of 80.0, the gross amount is ($4,800.00), Net Amnt Recieved is (-$1,200.00), ROI is (-20.0%), and APR is (-243.33%). What does this actually mean? Does it mean that I will need to sale in 30 days in order to recieve a good profit? Also should I run for the hills per say, if the note has a huge amount of money due to unpaid interest?

I will add some commentary while I eat some lunch.

Aware where you got the picture from. Always thought that confused folks and now confirmation. As Bill and Wayne mention, you are wading into waters without basic concepts understood well. This is why you do not fully understand what that image is telling you. I do also recognize this is you trying to find out what you don't know.

So with that, I will give you some feedback on your post to help you see a little more clearly what you do not clearly understand yet.

UPB = Unpaid Principal Balance - this is the total debt owed by the borrower to the mortgagee. When a loan is made the amount borrowed is "Principal". This is the amount left to be paid.

Is UPB a danger zone? No. Without UPB there is no loan, since that would imply nothing is due to be paid back.

You seem to be trying to relate note investing to real property investing and they are different animals. When you buy a property for $100 in a flat market the property can be resold for the same $100 (apply concepts of appreciation and deprecation accordingly). When you fund a loan, say for $100, so the borrower borrowed $100, each period that goes by, the balance would decrease based on the principal portion of the payment (assuming payments are made). So 1 year later the balance of the loan will be less than $100, say $90 (making up numbers for illustration). You did not loose money, that portion of the principal was already paid back. So the UPB would be $90. That loan can be sold for the amount of UPB [100%] (called PAR) owed or more than what is owed [100%+] (called Premium) or less than what is owed [100%-] (called Discount). Those terms refer to the the relationship of the principal balance as noted by the brackets "[ ]".

That column in the image which says Principal Balance % is the percent of the UPB that the loan is settled for, the row is how the loan is settled. So, the first row, "Sale of Note" is for 80% of the UPB. If you funded the loan of $100, received back $10 through borrower payments, so the loan has a current UPB (at the time of sale) of $90 where you then sold the loan for 80% of UPB ($72) you would loose money. You gave the new note buyer a 20% discount. Your net loss would have to be calculated using the amount of principal you discounted ($ 18) minus the amount of interest you received during ownership. A small sliver more of that in a moment.

So the other rows in the image are for different dispositions all of which, except for the bottom line, are for discounts. So row 2, "Owner Refinance" is essentially saying you took 60% of the UPB as payment in full when the borrower refinanced his loan, which pays you off. This is a loss, you took a 40% discount. You do not have to take the discount in any of these situations. The point of a loan is for money to be lent to a borrower and for it ALL to be paid back with interest over time.

So using the image data, the UPB of the loan is actually $18,874.94 since 80% of that number (line one) is $15,099.95. You can also verify this by using line 3, where $13,212.46 is 70% of UPB. If the borrower owes a UPB of $18,874.94 and you received 80% of that ($15,099.95) then you lost $3,774.99, which is 20% of the UPB or your discount. Since that loss took place within 30 days of time the annualized (somewhat improper, but I digress) ballpark loss is around 240%.

So, the example you typed out is not the same as the example used in the image. Looks like you fudged the loss percent, it's not 20% it's 25% since $1,200 is actually 25% of 4,800. 960 is 20% of 4,800.

In all of these examples, the "-" (minus sign) in front of the return cash number or return percent number means loss (also the color red). Standard accounting and fiancial concepts.

If you simply change the number in any of those lines to 100%, meaning you received 100% of the UPB, the loss will go away, since you got all the money back. This schedule will fail to deliver proper return numbers at that point since it does not take into consideration the amount of interest received from the borrower's payments.

Learning from the Mortgage Servicer and Loan Sales website you are browsing will add to your confusion. They do not do a good job of using normalized terminology for all fields names. And since you do not fully understand the asset well, it is going to create confusion for you. Clearly it is starting to do that already.

As Bill mentioned, take some time to read through some threads here on BP. You have to start at the beginning, look to understand basic terms and concepts. Deal or focus mainly on just the loan ideas themselves and not so much on the investment ideas. That way as you become comfortable with the loan concepts you can start to apply investment ideas and not confuse yourself. Stick to the ordinary not the extraordinary, ask questions here if you get confused. This is important because there are many moving pieces in a loan and then many moving pieces in investing. You will need to understand both, like any other type of investing and asset.

Good luck.

Unless you can faithfully reproduce the calculations in the worksheet you presented, @Jeremy Sanders , you are probably in over your head. The whole purpose of a worksheet like this is to automate calculations you understand and trust. I'd never rely on something someone else wrote without checking it thoroughly.

Numerically, all you are really doing here is buying an income stream; the basics of which are fairly straightforward. I strongly suggest you get yourself a copy of "Invest in Debt" by Jimmy Napier along with an HP10bII financial calculator. Follow along the book and reproduce his conclusions using the calculator.

In addition, you might go to and review the calculator problem he posts each week or so. Many of these involve real world cash-flow investment decisions and could help you learn as well. Gary teaches a cash-flow class, also known as his "Calculator Class," which I took a few years ago and reviewed here. He's not the only one that offers these so ask around locally. It's not a note class per se, but focuses more on cash flow and strategies – where I believe you really want to begin. All of this, the math, is the easy part.

When you buy notes you didn't originate, you never know if this was done properly. With Dodd-Frank, the Safe Act, and many state specific rules, everything changes frequently. In spite of even perfect cash-flow calculations, you don't want a borrower coming back claiming he was taken advantage of or that the note originator/seller/broker did something improper, thereby relieving him of some liability. Unless you know how to review the paperwork according to both federal and state law, you really need a good lending attorney in the state you're buying to review your purchase.

You can learn all the note jargon as you go.

Good luck, Jeremy.


Thanks to you all for the replies and great information. Sense I am very new at this I definitely will soak everything that you guys are given me in like a sponge. Jeff S Na Thank You for the tools you have enlighten me with. I am waiting for my book to come in the mail as well as my calculator.

If you hire a Mortgage Servicer make sure they understand the safe act and DF act and you need to get references from them. If the people that wrote the law can not explain it or want go on record to explain it how would a Mortgage Servicer be able to explain it.

Joe Gore

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