Performing vs Non-Performing Note
A performing note is one the borrower is paying on schedule; a non-performing note (NPN) is in default. The distinction drives how the note is valued.
Whether a mortgage note is performing or non-performing is the first question any note buyer asks, because the two are valued in completely different ways.
Performing notes
A performing note is one where the borrower is making payments substantially on time and as agreed. The note produces predictable monthly income, so it is valued primarily on its future payment stream — the present value of the remaining payments at a buyer's required yield. Strong seasoning, a fair interest rate, and a low investment-to-value ratio all push the price up. Performing owner-financed notes are the bread and butter of the retail note-buying market and typically sell at the smallest discounts.
Non-performing notes (NPNs)
A non-performing note is in default — usually defined as 90+ days delinquent, though some buyers treat any 30- or 60-day delinquency as sub-performing. An NPN no longer produces reliable income, so it is valued on the collateral and the likely recovery, not on a payment schedule. The buyer is really underwriting:
- The current value and condition of the property
- The borrower's equity and willingness to re-perform
- The cost and timeline to foreclose if a workout fails — which depends heavily on whether the state uses judicial or non-judicial foreclosure
- Any senior liens, taxes, or title problems
Because recovery is uncertain and takes time, NPNs trade at much deeper discounts — often a fraction of the unpaid principal balance.
Re-performing notes
Between the two sits the re-performing note (RPN): a loan that was non-performing, went through a modification or workout, and is paying again. RPNs price between NPNs and clean performing notes, with value rising as the new payment history seasons.
Why this matters when you sell
If your note is current, lead with the payment history — that is your leverage. If your note is behind, the conversation shifts to the property: its value, condition, and the borrower's situation. Either way, an honest payment status lets a buyer give you a real number quickly. Mortgage Note Capital buys both performing and non-performing notes, so a default does not mean your note is unsellable — it simply changes how we value it.