A performing note is a note where the payer is making the payments as agreed: the full amount, on time, with nothing past due. Buyers pay more for this status than for any other, because the income is arriving the way the document says it should.
How buyers decide a note is performing
“Performing” describes how a note is paying, which is a separate matter from the type of note it is. It is a market term with no single legal definition, and each buyer applies their own test. The tests have these points in common:
- The most recent payment has been made and no payment is overdue.
- Payments are for the full amount due, with no short payments.
- The pattern has held for a stretch of time and goes back further than the last month or two.
- Property taxes and insurance on the property are current.
Recent history counts for more than what happened years ago. The run of on-time payments a note has built up is called seasoning, and more of it gives a buyer more evidence to price from.
Performing, non-performing and re-performing
| Status | What it means | What a buyer prices |
|---|---|---|
| Performing | Paying as agreed | The stream of payments |
| Non-performing | Seriously behind or stopped | The property, less the cost and time to collect |
| Re-performing | Was behind, now paying again | The payments, with a margin for the past trouble |
Buyers draw the lines between these in different places. A note that runs a few weeks late now and then sits in a gray area, where one buyer still calls it performing and another prices it as a non-performing note. How long a note that fell behind must pay before it stops being a re-performing note is likewise each buyer’s call.
What the status does to the price
A note buyer works from the return they need, their yield. On a performing note they can calculate it from the payments, since there is good reason to expect those payments to keep coming. Less uncertainty lets the buyer accept a lower yield, and a lower yield means a higher price for you.
Status also decides who will bid. A buyer of paying notes needs only to collect, while a buyer of troubled ones must be ready to work out a default or take the property, so a performing note can go to a wider set of buyers. A partial sale, where you sell some of the payments and keep the rest, rests on the payments arriving, which makes performing status close to a requirement for one.
The discount on a performing note
A performing note still sells for less than the balance owed, and that discount depends on more than payment status. The other factors are the interest rate on the note, how many payments are left, the payer’s credit, the equity in the property and your lien position.
A perfectly paid note at a low rate with twenty years to run can take a larger discount than a note with an occasional late payment, a higher rate and a short remaining term. If a buyer says “performing” settles the price in either direction, ask to see the calculation behind the offer. The note pricing form takes the terms and the payment history if you want a second set of figures to hold against it.
Showing that a note is performing
A buyer wants a record they can check for themselves. What counts as one depends on who collects the payments:
- If a servicing company collects for you, its payment history is the cleanest proof.
- If you collect yourself, bank statements showing each deposit, matched to a simple ledger of dates and amounts.
- For taxes and insurance, a current tax receipt and an insurance declarations page naming you as lender.
Cash payments with no deposits behind them are hard to prove. If your payer pays in cash, start depositing each payment separately from now on, so that the record builds from here.
Keeping the record clean
A note that is performing today is in the strongest position it will have, and nothing about that calls for a quick decision. The payment record is the main asset in any later sale, so keep it complete whether or not you plan to sell. If the payer is starting to slip, write down the date and amount of each late payment as it happens. A buyer will find the gaps in any case, and a ledger that accounts for them is easier to price than one that leaves them out.
Related questions
Does one late payment make my note non-performing?
That is each buyer's call. A single late payment that was made up is a mark on the record, and buyers will ask about it. A pattern of late payments is what moves a note out of the performing group.
Can I sell a performing note and keep some of the payments?
That is a partial purchase: you sell a set number of upcoming payments for a lump sum and the note returns to you afterwards. It depends on the note, and a steady payment record is the main thing a buyer needs to see.
Who decides whether my note counts as performing?
Each buyer does, using their own standard and the payment record you supply. That is one reason offers on the same note can differ, and why it helps to see more than one.