When someone lends you money and has your home as a collateral, they carry a note, stating the terms of payments, amortized over a certain, definite timeline. In recent memory, many homeowners in America have failed to honor their commitment to make payments on their homes. This renders useless (i.e. non-performing) the promissory notes the lenders hold on the homes. Instead of foreclosing on homes, a lender may package the notes it holds on these homes and sell them off to an investor, who buys these notes at a discount and now becomes the new servicer. The new servicer can restructure (i.e. modify) the loans, making them more affordable for the homeowners, and beneficial to both parties.
For those with deep pockets, non-performing notes offer another great investment vehicle to make money in real estate.
