By Alejandro Duque
Managing Partner
DUQUE REAL ESTATE EQUITY & ADVISORY
6 MIN READ
A buyer is paying cash today for the right to resolve your problem. Their price is their math, not your note's worth.
This paper is educational material drawn from real transactions. It is not an offer of securities, and it is not tax or legal advice for your situation.
How Note Buyers Price Non-Performing Notes
The discounts feel aggressive, but they are not arbitrary. What drives a buyer's number, and why knowing their math tells you whether to take it.
You hold a note that has stopped performing and you want to move on. The first buyer offers fifty cents on the dollar, the second forty-five, the third fifty-five with conditions. The discounts feel aggressive, but they are not arbitrary. Buyers price problems with a framework, and once you see it, you can judge whether their number beats your alternatives.
What drives the price
Equity above the debt. The single biggest factor. A note well protected by property value lets the buyer recover through foreclosure if all else fails; a thin margin prices the risk down sharply.
Property type and condition. A well-kept house in a liquid market is the gold standard. Rural land, commercial buildings, or tired properties take longer to sell and price lower.
The state and its foreclosure clock. The same note is worth more where foreclosure takes months than where it takes years. Time is the buyer's largest cost.
The borrower's posture. A contested default, counsel on the other side, or a bankruptcy filing adds time and legal cost, and the price falls with each.
The file itself. A complete file (original note, recorded security instrument, payment history, notices properly served) prices meaningfully higher than one with gaps. Missing paper is legal risk, and buyers charge for it.
Lien position. First liens command real prices; junior liens, which a senior foreclosure can wipe out, trade far lower or not at all.
The buyer's arithmetic
Behind every offer is the same calculation: what the buyer expects to recover, minus the legal and carrying costs to get there, minus a return that pays them for the time and the risk. Their offer is what remains. None of it reflects what the note meant to you, what you lent, or what the payments once were; it is a cold appraisal of the resolution ahead.
What this means for you
If the buyer's number is close to what you would net from a workout or a cooperative exit, selling buys you certainty and peace, and that has real value. But when strong equity sits behind your note, the discount is a steep price for speed, and the alternatives (restructure, venture, exchange) usually return more. Run the buyer's math yourself before accepting it, and if you would like a second set of eyes, the first conversation with us is complimentary.