A re-performing note is one that fell behind and is being paid on time again. Buyers price it above a non-performing note and below one that never missed, and the gap to a clean note narrows as the new run of payments gets longer.
The routes back to paying
Every re-performing note paid, then stopped or slipped badly, then started again. How it started again tells a buyer a good deal, and it will have been by one of these routes:
- The payer caught up, either in a lump or over a few months.
- You and the payer signed a loan modification: new terms such as a lower payment, a longer term, or the missed amounts added to the balance.
- You agreed a forbearance, a pause or reduction in payments for a set period, and normal payments have resumed.
- The payer is paying under a court-approved bankruptcy plan. That brings rules of its own, so ask an attorney how it affects a sale.
Why buyers treat it as its own category
Re-performing is one of the categories buyers sort notes into, and it exists because of how they set a price: from the return they need for the risk they take on. A payer who has stopped once has shown it can happen, and restarting does not erase that, so the buyer asks for a higher return than on a note with a clean record. A higher return for the buyer means less cash for you.
Against that, the note is producing income again, which a non-performing note is not. The buyer can go back to pricing the payments, where before they would have priced the property and the cost of collecting, and that alone lifts the offer a long way.
Time closes the rest of the gap. The on-time payments since the recovery are a fresh kind of seasoning, the word buyers use for a note’s payment track record. Each buyer has a point at which they will treat the note as a performing note again, and because that point differs from one buyer to the next, so do their offers.
What a buyer will ask you
Expect the first question to be why the payments stopped. A job loss or an illness that has passed reads differently from a payer who never managed the payment comfortably. Next is how they restarted, because catching up in full shows more than needing the payment cut. The buyer will count the payments made since and check that each one arrived on time and for the full amount. They will also ask whether property taxes and insurance are current, since a payer under strain can let those lapse while still making the note payment.
If the terms were changed
A modification changes what you are selling. When you are selling a note after a loan modification, the buyer prices it as it stands now: the new payment, rate, balance and end date. A handshake arrangement gets in the way, because nobody can tell which terms are enforceable. If you changed the deal informally, have it written up and signed before you sell, and ask an attorney whether it should also be recorded.
Selling now or after a few more payments
Waiting has a real case here. Each further on-time payment lengthens the record a buyer is pricing, so if you do not need the cash yet, a sale some months on may bring more than one made straight after the recovery.
The risk in waiting is the same one the buyer is pricing: the payer may slip again, and then the note is non-performing once more. If the recovery looks fragile to you, or you need the money, selling while payments are arriving is reasonable.
Whichever you choose, build a ledger that shows the whole history, missed months included. A buyer will find the gap during their checks, and an offer made with the gap in view has less reason to change afterwards. Send that ledger when you ask us to price the note, and when offers come back, compare how each buyer treated the missed months.
Related questions
How many payments before a re-performing note counts as performing again?
There is no fixed number. Each buyer sets their own standard for how long the new run of on-time payments has to be. That is one reason two buyers can price the same note differently.
Should I tell a buyer about the missed payments?
Yes. A buyer will see the gap when they review the payment record, and an offer made without knowing about it may be cut once they do. Showing the full history up front gives you a price built on the real record.
Can I sell part of a re-performing note?
Sometimes. Partial buyers want confidence that the payments will keep coming, so a short recovery may not be enough. A longer run of on-time payments since the trouble makes a partial more likely.