Note Sale Bid Calculator

Buyers of distressed notes bid the discount needed to hit a target IRR after workout.

Unpaid principal balance

Expected recovery %

Workout months

Legal + servicing costs %

Target IRR %

Max bid price

$839,841

Expected gross recovery

$1,200,000

Bid as % UPB

0.6%

How the math works

Net recovery = UPB × recovery × (1−costs). Bid = net / (1+IRR)^months.

$1.5M × 80% × (1−8%) = $1.1M / 1.20^1.5 = $842k max bid = 56% UPB.

How to Use

Enter unpaid principal balance.
Enter expected recovery %.
Enter workout months to recovery.
Enter legal + servicing cost %.
Enter target IRR %.
Read max bid price.

Frequently Asked Questions

What is a note sale?

Lender sells the promissory note + mortgage (or equivalent lien) to a third-party buyer. Buyer steps into lender's shoes. Common reasons for seller: remove non-performing loan from balance sheet, regulatory capital relief, avoid lengthy foreclosure. Common buyers: distressed debt funds (Cerberus, Lone Star, Torchlight, FirstKey), regional note-trading shops, private investors at scale.

Typical discount?

Performing note at current market rate: 95-102% of UPB. Sub-performing (30-90 days late): 70-90% UPB. Non-performing (NPL): 40-65% UPB. Deep NPL (foreclosure filed, borrower gone): 25-45% UPB. REO-bound: 30-50% of expected liquidation value. Discount driven by: time to recovery, legal cost, collateral coverage, borrower cooperation.

Buyer's workout options?

(1) Modify/reinstate (cure default + modify terms). (2) Deed-in-lieu (take title, avoid foreclosure). (3) Short sale (approve borrower sale). (4) Foreclose + REO sale. (5) Discounted payoff (DPO — accept lesser amount for full release). (6) Re-sell note at higher price after partial cure. Sophisticated buyers run scenario tree; each path has different cost + IRR.

Due diligence checklist?

Collateral appraisal. Title report. Environmental (Phase I if commercial). Property tax status. Borrower financial statements (if sub-performing). Litigation history. Lender's legal file review. Servicing records. Regulatory compliance (TRID, RESPA, state-specific). Legal opinion on enforceability. Environmental/flood status. 6-8 week diligence typical for large portfolios; 2-4 weeks for single notes.