What is a Non Performing Note?

People as this question all the time, “What is a non performing note?” Jack, a recent viewer, had private messaged me from a video on the YouTube asked me if I could make a very simple video about what a note is. I let him know I’d do my best. In this article, accompanied by a video, will explain what a non performing note is.

Let's start with with the typical American dream, where you get married and purchase house in a nice spot in town. Both parents typically have good jobs or the father is working and the mother is a stay at home mom. Typically, in order to purchase the property, you need to go to a bank, fill out a mortgage application, and the bank will loan you money to the extent that you have the financially capability to repay the loan.

In 2005-2008, the lenders very very lenient on what bank loans they gave out, however in today’s market they have tightened up their guidelines. When Bill and Sarah took out their loan for their new house they needed to sign a promissory note, meaning the amount they agreed to repay the bank. They also signed a mortgage, which is the collateral held against the note. If the married couple ever needed to default on the note, they would have to give up their house back to the bank. That’s the difference between a note and a mortgage.

So how does a note go non performing? A non performing note is when the borrower stops paying on the note, it goes “non performing.” This is common when the borrower loses their job, becomes ill or some other unforeseen circumstance arises.

When a bank experiences a note that is non performing, they will foreclose on the property, however sometimes, they have so many of these toxic debt notes on their books they they sell them off to large investors to keep the government regulators off their backs.

Check out the video to get a better understanding of what a non performing note is.

To Your Success.

Matthew Hell

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