Note Investing Glossary — 280 Mortgage Note Terms
See these terms in action — real note deal case studies.
The plain-English language of the note business — for both note buyers and note creators. Search or filter 280 terms, defined by Dave Putz of JKP Holdings. New to notes? Start with the note investing guide.
Mortgage Note (Promissory Note)
The borrower's written, legally binding promise to repay a loan — the asset a note investor buys.
Performing Note
A note on which the borrower is making payments on time and as agreed.
Non-Performing Note (NPN)
A note where the borrower has stopped paying, usually 90+ days delinquent; trades at the deepest discount.
Re-Performing Note (RPL)
A once-defaulted note on which the borrower has resumed paying, often after a modification.
Sub-Performing Note
A note with inconsistent or partial payments — between performing and non-performing.
First Lien (First Position)
A note in the highest-priority position; paid first in a foreclosure.
Second Lien (Second Position)
A note subordinate to the first lien; paid only after the first lien is satisfied.
Junior Lien
Any note subordinate to a more senior lien; trades at steeper discounts.
Senior Lien
The first-priority mortgage, paid before all junior liens.
Private Mortgage Note
A note secured by real estate originated by an individual or non-institutional lender.
Institutional Note
A loan originated by a bank, credit union, or mortgage company; a primary NPL source.
Whole Loan
A single mortgage traded as one asset; the buyer owns the debt and controls the workout.
Wraparound Mortgage (Wrap Note)
A seller-financed note that wraps around an existing underlying loan the seller keeps paying.
Contract for Deed (Land Contract)
A seller-financing deal where the buyer pays installments while the seller keeps title until paid.
Secured Note
A promissory note backed by collateral, typically real estate.
Unsecured Note
A note no longer backed by collateral, leaving only the borrower's personal liability.
Seller-Financed Note
A note created when a property seller finances the buyer instead of a bank.
Trust Deed Investment
Lending money to a borrower who secures the loan with a deed of trust on real property.
Pooled Notes (Loan Pool)
A group of notes bundled and sold in a single transaction.
Scratch and Dent
Loans rejected from securitization (often paperwork issues) sold at a discount.
Promissory Note
The signed promise and obligation to repay the debt under stated terms.
Mortgage
The security instrument pledging real property as collateral and creating the lender's lien.
Deed of Trust
The security instrument used in many states involving a borrower, lender, and neutral trustee.
Allonge
A sheet attached to a note used to record endorsements when there's no room left on the note.
Assignment of Mortgage
The recorded document transferring a mortgage or deed of trust to a new holder.
Assignment Chain
The sequence of recorded transfers from originator to current holder; required to enforce.
Endorsement
The note holder's signature transferring the right to collect, like endorsing a check.
Collateral File
The original loan documents — note, mortgage, allonges, assignments, title policy — that prove ownership.
Chain of Title
The recorded history of a property's or note's ownership; an unbroken chain is essential.
Broken Chain of Title
A missing assignment gap that can block legal standing to enforce or foreclose.
Clear Title
Ownership free of liens or disputes; confirming it is core due diligence.
Cloud on Title
Any claim, lien, or encumbrance impairing clear ownership.
Title Search
A review of public records confirming ownership and identifying liens.
Title Insurance
Coverage protecting a note holder or owner against losses from title defects.
O&E Report
An ownership-and-encumbrance report showing title, liens, and encumbrances before bidding.
Abstract of Title
A chronological summary of recorded documents affecting a property's ownership.
Deed
The document transferring real property ownership from grantor to grantee.
Quit Claim Deed
A deed transferring whatever interest the grantor holds, with no warranty; liens survive.
Satisfaction of Mortgage
The recorded document releasing a lien once the debt is paid in full.
Reconveyance
Transfer of title from lender back to borrower once the loan is repaid in full.
Bill of Sale
A written receipt confirming transfer of loan ownership after funding.
Affidavit
A sworn, notarized statement of fact, used in lost-note and debt documentation.
Notary
A public official who verifies signer identity and witnesses signatures on recorded instruments.
Legal Description
The formal property-boundary identification used in deeds and mortgages.
Trailing Documents
Original loan documents shipped to the buyer after closing to complete the transfer.
Power of Attorney
Authorization for one party to act on another's behalf in legal or financial matters.
Encumbrance
Any claim, lien, or restriction on a property affecting clear title or value.
Lien
A legal claim against a property securing a debt; its type and priority drive a note's value.
UPB (Unpaid Principal Balance)
The principal still owed; the most common basis for pricing a note.
Face Value
The original principal amount stated on the promissory note.
Par Value
A note's face value or unpaid balance; buying below par creates the discount.
Discount
The amount below a note's unpaid balance at which it's bought; notes almost always trade at a discount.
LTV (Loan-to-Value)
Loan balance divided by property value; lower LTV means more equity cushion and less risk.
CLTV (Combined Loan-to-Value)
All liens divided by property value; a key metric for second-lien investors.
ITV (Investment-to-Value)
Amount invested divided by property value; a primary NPN pricing metric.
BPO (Broker Price Opinion)
A broker's estimate of a property's value, used in place of a full appraisal.
Appraisal
A licensed appraiser's formal property valuation; the gold standard of value.
FMV (Fair Market Value)
The price a property would sell for between willing parties — the key pricing input.
ARV (After-Repaired Value)
A property's estimated value once repairs are completed.
Assessed Value
The value a tax assessor assigns for property taxes, often differing from market value.
Comparable Sales (Comps)
Recent similar sales used to estimate a property's current value.
Yield
The annual percentage return an investor earns on a note.
Gross Yield
Return on investment before acquisition and servicing costs.
Net Yield
Return on investment after acquisition and servicing costs.
Yield to Maturity
Total annualized return if a note is held until the balance is paid in full.
IRR (Internal Rate of Return)
A return metric accounting for the timing of every cash flow.
ROI (Return on Investment)
Total profit as a percentage of capital invested; ignores hold time.
Cap Rate
Net operating income divided by property value; a quick property-return gauge.
Present Value
The current worth of future payments discounted at a chosen rate.
Net Present Value
The difference between expected cash-flow present value and acquisition cost.
Discount Rate
The interest rate used to calculate the present value of a note's cash flows.
Basis Point
One one-hundredth of a percent (0.01%); used to express rate and pricing changes.
Bid-Ask Spread
The gap between a buyer's offer and a seller's asking price.
Cost Basis
Total acquisition amount — price plus costs — used to calculate gain or loss.
Indicative Bid
A non-binding preliminary offer based on tape data, before full due diligence.
Accrued Interest
Interest earned but not yet paid; potential upside on a non-performing note.
Compound Interest
Interest calculated on principal plus previously accumulated interest.
Simple Interest
Interest accruing only on the outstanding principal — the standard note method.
APR (Annual Percentage Rate)
The yearly cost of a loan including the rate plus fees and points.
Coupon (Interest Rate)
The stated interest rate the borrower pays on the note.
Equity
The difference between a property's value and the debt secured against it.
Default
A borrower's failure to meet the loan's terms, usually by missing payments.
Delinquency
A loan with late payments; 90+ days past due is the non-performing threshold.
Arrears
The total of a borrower's missed payments — principal, interest, escrow, and fees.
Acceleration Clause
A provision letting the lender demand the full balance upon default.
Notice of Default (NOD)
The formal recorded notice that a loan is in breach — often the first foreclosure step.
Breach Letter
A formal notice to a borrower of a term violation requiring cure or acceleration.
Demand Letter (NOI)
An attorney notice of default and intent to foreclose — a high-converting outreach.
Foreclosure
The legal process by which a note holder takes the collateral after default.
Judicial Foreclosure
A foreclosure requiring a lawsuit and court judgment before sale.
Non-Judicial Foreclosure
A foreclosure run by a trustee under a power-of-sale clause, without court.
Pre-Foreclosure
The early stage after a default notice but before the property is sold.
Sheriff Sale
The court-ordered public auction selling a foreclosed property.
Deficiency Judgment
A judgment for the remaining debt after a foreclosure sale falls short (where allowed).
Anti-Deficiency
State laws barring lenders from pursuing a borrower's assets after a short foreclosure sale.
REO (Real Estate Owned)
Property a lender or investor owns after foreclosure or a deed in lieu.
Deed in Lieu of Foreclosure
When a defaulted borrower voluntarily signs the property over to avoid foreclosure.
Cash for Keys
A payment to a defaulted borrower or occupant to vacate voluntarily instead of being foreclosed.
Eviction
The legal process of removing an occupant after foreclosure.
Ejectment
A title-based action removing occupants with no right to possession after foreclosure.
Right of Redemption
A borrower's right to reclaim a property after foreclosure by paying the full amount owed.
Reinstatement
When a delinquent borrower brings the loan current by paying all past-due amounts.
Charge-Off
When a bank writes off a bad loan; the debt and lien still survive and can be sold.
Default Rate
A higher interest rate triggered upon default, increasing the investor's workout yield.
Loss Mitigation
Resolving a defaulted loan short of foreclosure — modification, repayment, or payoff.
Workout
A negotiated agreement between note holder and borrower to resolve a default.
Loan Modification
A permanent change to a loan's rate, payment, or term to help a borrower re-perform.
Principal Reduction
A modification forgiving part of the balance to improve affordability.
Forbearance
A temporary agreement to reduce or pause payments while a borrower recovers.
Repayment Plan
An arrangement spreading a borrower's arrears into installments alongside regular payments.
Trial Payment Plan
A temporary 3-6 month plan testing a borrower's ability before a permanent modification.
Deferred Payments
Moving past-due amounts to the back of the loan so the borrower can resume paying.
Discounted Payoff (DPO)
Settling a loan for less than the full balance — often the fastest, most profitable exit.
Short Sale
Selling a property for less than the debt, with lien holders accepting reduced proceeds.
Foreclosure Prevention
Workout strategies that resolve a default without a foreclosure sale.
Hardship Letter
A borrower's written explanation of a default, required to evaluate a workout.
Skip Trace
Using public records to locate an unreachable borrower so a workout can happen.
Door Knock
An in-person property visit to confirm occupancy or contact a non-responsive borrower.
Exit Strategy
The investor's plan to realize a return — reinstate, modify, sell, or foreclose.
Best Execution
Choosing the resolution that maximizes net return, balancing price, speed, and risk.
Servicer
A licensed company that processes payments, manages escrow, and ensures compliance.
Loan Servicer
The company collecting payments and handling borrower communication for the note holder.
Servicing Fee
The monthly fee a servicer charges to manage a note.
Mortgage Servicing Rights
The tradeable right to service a mortgage in exchange for a fee.
Loan Boarding
Importing a newly purchased loan's data and history into a servicer's system.
Servicer Transfer
Moving servicing responsibility from one company to another.
Goodbye / Hello Letter
Required notices when servicing transfers — the old and new servicer introductions.
Escrow
A third-party account holding funds, or a servicer's account for taxes and insurance.
Escrow Analysis
An annual servicer review reconciling the escrow account and adjusting payments.
Escrow Shortage
Insufficient escrow funds to cover upcoming taxes or insurance.
Impound Account
A servicer-managed reserve collecting funds for property taxes and insurance.
Forced-Place Insurance
Insurance the note holder buys when the borrower lets their own policy lapse.
Hazard Insurance
Coverage protecting the collateral against fire, wind, and other perils.
P&I (Principal & Interest)
The part of a payment covering principal and interest, excluding taxes and insurance.
ACH Payment
An automatic electronic bank transfer used to collect mortgage payments.
Auto-Pay
A recurring arrangement that drafts the borrower's payment automatically each month.
Payoff Statement
A statement of the exact amount needed to satisfy a loan in full.
Payment History
The complete record of a borrower's payments, dates, amounts, and any misses.
Late Fee
A penalty charged when a payment arrives after the grace period.
Grace Period
A window after the due date (often ~15 days) to pay without a late fee.
Corporate Advance
A servicer payment on the borrower's behalf for taxes or preservation; recoverable.
Amortization
The gradual payoff of principal and interest through regular payments.
Amortization Schedule
A table showing how each payment splits between principal and interest.
Negative Amortization
When a payment is too small to cover interest, so unpaid interest is added to the balance.
Maturity Date
The date the final payment — including any balloon — is due.
Balloon Payment
A large lump-sum payment due at the end of a loan term.
Prepayment
Paying off a loan before maturity, accelerating capital recovery.
Prepayment Penalty
A fee charged for paying off a loan before maturity.
RESPA
The Real Estate Settlement Procedures Act, governing mortgage servicing and escrow.
Dodd-Frank Act
The 2010 law reshaping mortgage regulation and governing owner-financing compliance.
CFPB
The Consumer Financial Protection Bureau, regulating servicing and debt collection.
Truth in Lending Act (TILA)
Federal law requiring standardized disclosure of loan terms and costs.
FDCPA
The Fair Debt Collection Practices Act, governing how collectors may contact borrowers.
Debt Validation
An FDCPA requirement to verify a debt in writing within 30 days on request.
Usury
Laws capping the maximum interest rate; violations can void a loan or trigger penalties.
Statute of Limitations
The legal time limit to enforce a debt or foreclose.
Lis Pendens
A public notice that a lawsuit affecting a property is pending, clouding title.
Quiet Title Action
A court proceeding resolving ownership disputes and removing title clouds.
Predatory Lending
Abusive origination practices that create assignee-liability risk for buyers.
Assignee Liability
Legal risk a note buyer inherits for origination defects or lending violations.
Representations & Warranties
Seller guarantees in a sale contract covering loan accuracy and enforceability.
Recourse
A lender's right to collect from a borrower even after seizing the collateral.
Subordination Agreement
A document changing lien priority, keeping a junior lien behind a senior one.
Super-Lien
A statutory lien (often HOA dues) that can prime an earlier first mortgage in some states.
Tax Lien
A government claim for unpaid taxes, holding super-priority over private liens.
Mechanic's Lien
A claim by an unpaid contractor or supplier for work or materials.
HOA Lien
An association claim for unpaid dues that can, in some states, prime a first mortgage.
Easement
A legal right for someone other than the owner to use part of a property.
Eminent Domain
The government's power to take private property for public use with compensation.
Garnishment
Court-ordered seizure of wages or funds to satisfy a debt.
Homestead Exemption
A protection shielding part of a primary residence from creditors.
Adverse Possession
A doctrine allowing an ownership claim through open, continuous unauthorized use.
Subrogation
The right to step into another's position to enforce a claim or lien.
Extinguishment
The elimination of a lien or debt through payment, foreclosure, or court order.
Bankruptcy
A federal court process giving a borrower debt relief; it halts foreclosure while active.
Chapter 7 Bankruptcy
Liquidates non-exempt assets and discharges unsecured debts; mortgage liens survive.
Chapter 13 Bankruptcy
Lets a borrower repay debts over 3-5 years while keeping the property; can strip junior liens.
Automatic Stay
An immediate halt to foreclosure and collection upon a bankruptcy filing.
Motion for Relief
A court filing asking the judge to lift the stay so foreclosure can proceed.
Cram Down
A Chapter 13 reduction of a secured lien to the property's value — a major junior-lien risk.
Lien Strip
A bankruptcy action removing a junior lien when senior debt exceeds the property value.
Discharge
A bankruptcy release of personal liability that does not extinguish the mortgage lien.
Reaffirmation
A bankruptcy agreement where the borrower voluntarily keeps a debt's personal liability.
Proof of Claim
A creditor filing in bankruptcy documenting the debt amount and secured status.
Probate
The court process settling a deceased borrower's estate; it can delay resolution.
Note Investing
Buying the debt instead of the property, to collect payments or work out defaulted loans.
Due Diligence
Pre-purchase research — verifying documents, value, title, and pay history.
Bid Tape (Tape)
A spreadsheet of notes for sale listing each loan's key data so buyers can price them.
Note Partial
Buying or selling a set number of a note's future payments; the back end reverts to the original holder.
Hypothecation
Borrowing against a note you own — pledging it as collateral — to raise cash without selling it.
Secondary Market
Where existing notes are bought and sold after origination — the heart of note investing.
Deal Flow
An investor's pipeline of note opportunities from sellers, brokers, and direct sourcing.
Bulk Sale
A purchase of a large group of notes in one transaction, usually at a volume discount.
Cherry-Picking
Selecting individual loans from a larger pool rather than buying the whole tape.
Loan Pool
A group of notes bundled for a single sale; how banks sell and investors buy.
Pool Buyer
An investor or fund acquiring notes in bulk portfolios at wholesale pricing.
Whole Loan Sale
The sale of a single note as one asset, transferring full ownership and control.
LOI (Letter of Intent)
A non-binding document outlining a proposed price, timeline, and contingencies.
PSA (Purchase & Sale Agreement)
The contract that sets the terms for buying or selling a note.
LPSA (Loan Purchase & Sale Agreement)
The binding contract defining price, warranties, and document delivery for a note sale.
Contingency
A contract condition that must be met before a buyer is obligated to fund.
Proof of Funds (POF)
A statement verifying a buyer has the capital to close a purchase.
Daisy Chain
A deal with multiple brokers between buyer and seller, each adding fees.
Note Broker
Someone who finds notes for sale and brings them to buyers for a fee, without buying.
Velocity of Money
How quickly an investor recycles capital from one note into the next deal.
OPM (Other People's Money)
Using borrowed funds or investor capital, not only your own cash, to buy notes.
Seasoning
How long a borrower has paid consistently; more seasoning lowers risk and raises value.
Sharpen Your Pencil
A seller's signal that a buyer's bid is close but needs to improve.
Borrower (Mortgagor)
The person who took out the loan and owes the payments.
Payor
The party making payments on a note — the borrower.
Note Holder
The party that legally owns the note and is entitled to the payments.
Lender (Mortgagee)
The party originating or holding the loan and holding the lien.
Beneficiary
In a deed of trust, the lender or note holder who receives payments.
Trustee
The neutral third party in a deed of trust who holds title and runs non-judicial foreclosure.
Originator
The party that created and funded the original loan and drafted the documents.
Creditor
The party to whom a debt is owed; the note holder with the right to collect.
Debtor / Obligor
The party legally bound to repay the debt — the borrower.
RMLO (Residential Mortgage Loan Originator)
A licensed pro who underwrites owner-financed loans to keep them Dodd-Frank compliant.
Accredited Investor
An investor meeting SEC income/net-worth thresholds, eligible for private note funds.
LLC
A business structure that shields an investor's personal assets from portfolio liabilities.
Entity
A legal business structure (LLC, corporation, trust) separating personal assets from liabilities.
General Partner (GP)
The managing partner controlling operations, with unlimited liability.
Limited Partner (LP)
A passive investor contributing capital without management responsibility.
Joint Venture
An arrangement pooling resources from two parties for a specific note project.
Operating Agreement
An LLC's governing document defining ownership, profit splits, and decisions.
SDIRA (Self-Directed IRA)
A retirement account that can hold notes for tax-deferred or tax-free investing.
Hedge Fund
A private pooled vehicle that buys large note portfolios from banks and GSEs.
Private Equity
Investment capital deployed into private assets, including distressed note portfolios.
GSE (Government-Sponsored Enterprise)
A federally chartered entity like Fannie Mae adding mortgage-market liquidity.
Fannie Mae
A GSE that buys and securitizes mortgages; a major source of note pools.
Freddie Mac
A GSE that buys and securitizes mortgages, similar to Fannie Mae.
FDIC
The agency that insures bank deposits and resolves failed banks — a source of bulk NPL sales.
Warehouse Line
A revolving credit facility used to fund note acquisitions before resale.
Leverage
Using borrowed capital to increase buying power and amplify returns.
Capital
The cash available to purchase notes; its amount and source shape deal flow.
Passive Income
Cash generated by performing notes, without the work of owning rental property.
Securitization
Pooling many mortgages into a trust and issuing securities backed by them.
Mortgage-Backed Security (MBS)
An investment representing an interest in a pool of mortgages.
Fixed-Rate Mortgage
A loan whose rate stays constant for the full term, with predictable payments.
ARM (Adjustable-Rate Mortgage)
A loan whose rate resets periodically based on an index plus a margin.
Interest-Only Loan
A loan where the borrower pays only interest for a set period, with no principal reduction.
Balloon Mortgage
A loan requiring a large lump-sum principal payment at maturity.
Conventional Mortgage
A home loan not insured or guaranteed by a federal agency.
Conforming Loan
A loan meeting Fannie Mae and Freddie Mac guidelines for secondary-market purchase.
Non-Conforming Loan
A loan failing GSE guidelines for size, credit, or documentation — a common note source.
Jumbo Loan
A mortgage exceeding conforming loan limits, with higher risk and pricing.
FHA Loan
A residential mortgage insured by the Federal Housing Administration.
VA Loan
A mortgage guaranteed by the Department of Veterans Affairs for eligible service members.
USDA Loan
A government-backed mortgage for eligible rural and suburban buyers.
Reverse Mortgage
A loan letting homeowners 62+ convert equity to cash without monthly payments.
Hard Money Loan
A short-term, asset-based private loan underwritten on collateral, not credit.
Bridge Loan
Short-term financing covering the gap between an immediate need and longer-term funding.
HELOC (Home Equity Line of Credit)
A revolving credit line secured by home equity, usually in second position.
Second Mortgage
An additional mortgage subordinate to the first lien on a property.
Commercial Mortgage
A loan secured by commercial property such as office, retail, or multifamily.
Qualified Mortgage
A loan meeting federal safe-lending requirements that limit high-risk features.
Owner Financing
When a property seller acts as the bank, creating a note the buyer pays.
Seller Financing
A seller financing the buyer directly and collecting payments instead of a bank.
Refinance
Replacing an existing mortgage with a new loan, producing a full payoff.
Assumable Mortgage
A loan a new borrower can take over with the original rate and terms.
Collateral
The real property securing a note; the note holder can pursue it on default.
Occupancy
Whether a property is owner-occupied, tenant-occupied, or vacant — it shapes strategy.
Vacant Property
A property with no occupant, raising risk through deterioration and vandalism.
Absentee Owner
A non-resident property owner, signaling higher collateral risk.
Abandonment
When a borrower vacates a property and relinquishes ownership interest.
Appreciation
An increase in property value over time, strengthening the collateral.
Depreciation
A decline in property value, eroding collateral security and equity.
Underwater (Upside Down)
When the loan balance exceeds the property's value (negative equity).
Fee Simple
The highest form of property ownership, granting full unrestricted rights.
Survey
A professional measurement and mapping of a property's boundaries.
Improved Land
Land enhanced with structures or utilities, affecting note valuation.
Mineral Rights
Ownership of subsurface resources, severable from surface ownership.
Days on Market
How long a property has been listed, indicating local demand and timelines.
Property Taxes
Annual government levies on real property; unpaid taxes create super-priority liens.
Special Assessment
A charge against properties benefiting from a specific public improvement.
Zoning
Local regulations dictating property use, which affects value.
HOA (Homeowners Association)
An entity managing a community, collecting dues, and placing liens for unpaid dues.
Mortgage Insurance
Coverage protecting the lender against loss on high-LTV loans.
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Get the Ebook — $9.99 →Most-Asked Note Investing Questions
What is Mortgage Note?
The borrower's written, legally binding promise to repay a loan — the asset a note investor buys.
What is Note Investing?
Buying the debt instead of the property, to collect payments or work out defaulted loans.
What is Non-Performing Note?
A note where the borrower has stopped paying, usually 90+ days delinquent; trades at the deepest discount.
What is Performing Note?
A note on which the borrower is making payments on time and as agreed.
What is Seller Financing?
A seller financing the buyer directly and collecting payments instead of a bank.
What is UPB?
The principal still owed; the most common basis for pricing a note.
What is LTV?
Loan balance divided by property value; lower LTV means more equity cushion and less risk.
What is BPO?
A broker's estimate of a property's value, used in place of a full appraisal.
What is Due Diligence?
Pre-purchase research — verifying documents, value, title, and pay history.
What is Note Partial?
Buying or selling a set number of a note's future payments; the back end reverts to the original holder.
What is Hypothecation?
Borrowing against a note you own — pledging it as collateral — to raise cash without selling it.
What is Wraparound Mortgage?
A seller-financed note that wraps around an existing underlying loan the seller keeps paying.
What is Deed of Trust?
The security instrument used in many states involving a borrower, lender, and neutral trustee.
What is Discount?
The amount below a note's unpaid balance at which it's bought; notes almost always trade at a discount.
What is Yield?
The annual percentage return an investor earns on a note.
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