Well first, we need to ask what a "Note" is in the Real Estate world. In the United States, a mortgage note (also known as a real estate lien note, borrower's note) is a promissory note secured by a specified mortgage loan. It is a written promise (an obligation) to repay a specified sum of money plus interest at a specified rate and length of time to fulfill the promise. While the mortgage deed or contract itself hypothecates or imposes a lien on the title to real property as security for a loan, the mortgage note states the amount of debt and the rate of interest, and obligates the borrower, who signs the note, personally responsible for repayment. In foreclosure proceedings in certain jurisdictions, borrowers may require the foreclosing party to produce the note as evidence that they are the true owners of the debt.
A Note or Mortgage becomes a Non-Performing Note (NPN) when the borrower has not made his or her scheduled payments for at least 90 days. The loan is then classified as in default. Once the Note enters into a default statues, the Note holder is automatically granted full legal rights and legal remedies' to redeem their money invested. If the borrower doesn't catch up on their payments, then the lien-holder has legal recourse to start foreclosure proceedings as a legal remedy to satisfy the debt owed based on the terms the borrower agreed to in exchange for the money to actually buy the property. The Lien Holder is in the number #1 position as to the of the underlying collateral and its future disposition.
Due to Wall Street and Banking Regulations, entities are forced to sell off certain non-Performing Assets in order to preserve the lending institutions finance stability. Odd as it may seem to be, selling-off bad assets at bargain basement prices can actually make a Wall Street Bank solvent once again. These NPN are traded and purchased by Banks, Wall Street hedge Funds and other Financial entities AND investors, like us!