Mortgage notes are sold by banks and other lenders, by funds and trading desks that resell loan pools, on online note marketplaces, through note brokers, and by the private holders who created the notes in the first place. Each source sells different paper, in different sizes, with a different amount of checking already done.
Where you buy shapes almost everything that follows: how much capital you need, how many other bidders you face, what the file looks like and how much of the verification falls on you. This page compares the sources so you can pick the one that fits your money and your experience.
The sources side by side
| Source | Typical paper | How it is sold | What to watch |
|---|---|---|---|
| Banks, credit unions and other lenders | Loans they made and no longer want to hold, often delinquent | Mostly in pools, by sealed bid, to approved buyers | Minimum sizes and a buyer approval process |
| Funds and trading desks | Loans bought in pools from lenders, then resold singly or in smaller groups | A loan tape with a bid deadline | Why this loan is being sold on, and how long it has been held |
| Online note marketplaces | Single notes and small pools listed by funds, brokers and holders | Listings with an asking price or open bidding | Who actually owns the note behind the listing |
| Note brokers | Notes from individuals and businesses who asked for a price | Sent to buyers whose criteria the note fits | Whether the broker is also bidding |
| Private holders, directly | Seller-financed notes, land contracts and business notes | Your own marketing and negotiation | Every check and closing step is yours |
Banks and other lenders
Lenders sell loans to clean up their books, raise cash or exit a type of lending. Performing loans in large volumes mostly trade between institutions, and the loans a smaller investor is likely to see from a bank are the delinquent ones. Those usually go out as pools under a bidding process with deposit requirements and a closing timetable set by the seller. Some community banks and credit unions will sell a single loan to a local buyer they know, but that tends to come from a relationship built over time, not from a listing.
Government-sponsored enterprises and federal agencies have also sold pools of delinquent loans. Those sales are sized for institutional bidders, so for most individuals the realistic way into that paper is buying from a fund that bought the pool. Before putting money in one, it helps to understand note funds and securities law.
Funds and trading desks
Funds buy pools, work some loans themselves and sell the rest onward. They describe what they have on a loan tape, a spreadsheet with a row for each loan: balance, rate, payment, last payment date, property address, value estimate and lien position. You bid on the tape, and the bid holds only if the files check out. The seller side of the same process is described in selling a note portfolio.
This is where many individual investors buy their first non-performing note. Before you bid, ask why the loan is on offer. A fund may be selling because the loan does not fit its plan, or because its own staff tried to resolve it and could not. Both are fair reasons to sell, and they lead to very different purchases.
Online note marketplaces
Marketplaces gather listings from many sellers in one place and let you filter by state, lien position, balance and status. That makes it easy to see a lot of paper quickly and to learn what notes like the ones you want are asking. The marketplace itself usually does not own the notes, so the quality of each listing depends on the party behind it.
Some listings come from people who have a note under contract and intend to resell it before they close on it themselves. That is not always improper, but you need to know which you are dealing with. Ask for the chain of ownership and confirm it the way verifying a note seller sets out before you put money on deposit.
Note brokers
A broker gets notes from the holders who created them: people who sold a house, land or a business and took payments over time. The broker gathers the file and sends it to buyers whose criteria it fits. Ask any broker three things: whether they represent the holder, whether they own the note or hold it under contract, and whether they ever bid on notes themselves.
Our own answers are on the page about how we source notes. In short, we broker notes from private holders and buy some with our own or partner capital, and we tell the seller which role we are playing. Investors can join the buyer list to see the notes we broker that match the criteria they give us. Flow from private holders is uneven, so treat the list as one source among several.
Buying straight from the holder
Recorded mortgages and deeds of trust are public, and where the lender named on one is a person and not a bank, that person may be a note holder. Some investors write to those holders directly. It can find notes that never reach any marketplace, but it is slow, most letters go unanswered, and the holder is often an older person who has never priced a note before.
If you buy this way, show the holder your math: the balance, the yield you are pricing at and the price that results. A price the holder later learns was well below what other buyers would pay can unravel a deal and your name with it. You also take on everything a broker or fund would have assembled, from the payment history to the title search, so work through a due diligence checklist for note buyers item by item.
Matching the source to your plan
Start with what you want to own. A buyer after steady monthly income on a first lien will spend most time with brokers, private holders and the performing listings on marketplaces. A buyer who wants to work out defaulted loans will spend it with funds and tapes, and should first read how performing and non-performing notes differ in return, workload and risk.
Then be honest about capital and time. Pools need more money and a team to review dozens of files at once. Single notes need less money but just as much care per file, and the work of verifying a private note does not shrink because the balance is small. Whichever source you use, the next step is the same: putting a priced, conditional bid in front of the seller, which is covered in how to make an offer on a note. The rest of the path from first look to closing is in the note investor guide.
Related questions
Can an individual buy mortgage notes from a bank?
Sometimes, but most bank sales are pools sold by bid to approved buyers, sized for institutions. Some community banks and credit unions sell single loans to local buyers they know. For most individuals, bank paper arrives through a fund that bought the pool.
Are online note marketplaces safe to buy from?
A marketplace is only as reliable as the seller behind each listing. Confirm who owns the note, ask for the chain of assignments and run your own title and payment checks before you put down a deposit.
How do I see the notes Note Brokering brokers?
Join the buyer list and tell us the note types, lien positions, states and balance sizes you buy. Notes that fit those criteria are sent to you as they come in, and flow from private holders is uneven.