Performing vs Non-Performing Land Notes in Texas: Value Differences

The distinction between performing vs non-performing land notes in Texas is the single most impactful factor that determines what your note is worth on the secondary market. A performing note — one where the borrower is making payments on time — is a fundamentally different asset than a non-performing note — one where the borrower has stopped paying or is significantly behind on payments. The value gap between these two categories can be dramatic, with performing notes commanding significantly higher prices than their non-performing counterparts. Understanding why this gap exists, how large it is, and what you can do to maximize your note's value regardless of its current status is essential knowledge for every Texas land note holder.

The performing vs non-performing distinction affects every aspect of a note transaction — from the initial evaluation to the closing price to the buyer pool to the timeline of the sale. A performing note represents a predictable income stream backed by collateral, which makes it attractive to a wide range of note buyers. A non-performing note represents a workout situation — the buyer must either negotiate with the borrower, pursue foreclosure, or find another path to recovery — which limits the buyer pool to specialists who have the expertise and resources to manage distressed assets. This difference in buyer demand, combined with the difference in risk profile, creates the significant value gap that defines the performing vs non-performing land note market in Texas.

Whether you are currently holding a performing note and want to understand how to protect its value, or you are dealing with a non-performing note and need to know your options, this guide will give you a comprehensive understanding of the value differences between these two categories and the practical implications for Texas land note holders.

Defining Performing and Non-Performing Land Notes

What Makes a Note "Performing"

A performing land note in Texas is one where the borrower is meeting their payment obligations as specified in the promissory note. At the most basic level, this means the borrower is making their monthly payments on time or within the grace period specified in the note. However, the concept of "performing" has nuances that affect value. A note where the borrower has made every payment on the exact due date for five consecutive years is a stronger performer than a note where the borrower has technically been current but has frequently paid during the grace period or has been late a few times before catching up. Both are technically performing, but the quality of performance differs, and that quality is reflected in the price a buyer will offer.

The gold standard for a performing note is consistent, on-time payments over an extended period — ideally two years or more — with no late payments, no modification history, and no communication from the borrower suggesting financial difficulty. This type of note commands the best pricing on the secondary market because the borrower has demonstrated a sustained pattern of reliability that inspires confidence in the income stream's continuity. Notes with shorter payment histories, occasional late payments, or recent modifications are still performing, but the payment pattern introduces questions that may result in a slightly lower offer.

What Makes a Note "Non-Performing"

A non-performing land note is one where the borrower has failed to meet their payment obligations. The most common definition used by note buyers is a note where the borrower is 90 days or more past due on their payments. However, the spectrum of non-performance is wide. A note that is 90 days past due because the borrower had a temporary financial setback but has communicated and expressed intent to resume payments is a different situation than a note that is 12 months past due with a borrower who has abandoned the property and is unresponsive to all communication. The former may be a workout opportunity; the latter is a foreclosure situation. Both are non-performing, but the expected recovery and the buyer's approach to each are very different.

Some notes fall into a gray area between performing and non-performing — the borrower is making some payments but not the full amount, or the borrower is consistently 30 to 60 days late but eventually brings the payments current. These "sub-performing" notes are evaluated on a case-by-case basis, with the buyer assessing the likelihood that the borrower will either return to full performance or slide into complete default. The pricing on sub-performing notes falls between performing and non-performing, reflecting the uncertainty about the note's trajectory.

The Value Gap: How Much Less Are Non-Performing Notes Worth?

Performing Note Pricing

Performing Texas land notes typically sell at discounts ranging from 10 to 30 percent of the remaining balance, depending on the note's characteristics. A well-structured performing note with a strong borrower, a competitive interest rate, a low loan-to-value ratio, and thorough documentation might sell at a 10 to 15 percent discount — meaning the seller receives 85 to 90 percent of the remaining balance. A performing note with weaker characteristics — a lower interest rate, thinner payment history, higher loan-to-value, or incomplete documentation — might sell at a 20 to 30 percent discount. These discounts reflect the time value of money and the buyer's required yield, not distress — the note is performing, and the buyer expects it to continue performing.

Non-Performing Note Pricing

Non-performing Texas land notes sell at significantly steeper discounts, typically ranging from 40 to 70 percent of the remaining balance — meaning the seller receives 30 to 60 percent of the balance. The exact discount depends on the underlying property value, the condition of the property, the borrower's status (communicative and potentially curable versus absent and unresponsive), the title condition, the foreclosure cost and timeline, and the likelihood of recovering the full property value through resale. The pricing is driven not by the note's income stream (which has stopped) but by the expected net recovery after the buyer completes a workout or foreclosure and either resumes payments or sells the property.

The gap between performing and non-performing pricing can be illustrated with a concrete example. Consider a Texas land note with a 50,000-dollar remaining balance, secured by a property currently worth 65,000 dollars. If the note is performing with two years of on-time payments and a 10 percent interest rate, a buyer might offer approximately 42,000 to 45,000 dollars — an 84 to 90 percent recovery for the seller. If the same note is non-performing with nine months of missed payments, the buyer might offer approximately 20,000 to 30,000 dollars — a 40 to 60 percent recovery. The difference between these two scenarios — potentially 15,000 to 25,000 dollars — illustrates why maintaining a note's performing status has enormous financial consequences.

Why the Gap Exists

The value gap between performing and non-performing notes reflects the real costs and risks the buyer absorbs when purchasing a distressed note. A buyer of a non-performing note faces several costs that do not apply to performing notes: legal fees for foreclosure or workout negotiation, which can range from 1,500 to 5,000 dollars or more; the time cost of the foreclosure process, which ties up the buyer's capital for months without generating income; potential property maintenance and holding costs if the buyer acquires the property; property taxes that may be delinquent and must be paid; and the marketing and closing costs of reselling the property if that is the recovery strategy. All of these costs are deducted from the expected recovery, which is why the offer to the non-performing note seller is substantially lower.

What Determines the Value of a Non-Performing Texas Land Note

Property Value Relative to Note Balance

The most important factor in non-performing note pricing is the current value of the underlying property relative to the remaining note balance. If the property is worth significantly more than the balance — say, a 40,000-dollar note on a property worth 70,000 dollars — the buyer has substantial equity cushion, and the non-performing note commands a better price because the recovery prospects are strong. If the property is worth less than the balance — an "underwater" note — the pricing reflects the expectation that the buyer will not recover the full balance even through foreclosure and resale. The loan-to-value ratio is the single most influential variable in non-performing note pricing. For a deeper understanding of all the factors that influence pricing, our article on what determines note value in Texas provides a comprehensive overview.

Borrower Status and Workout Potential

A non-performing note where the borrower is communicative, acknowledges the debt, and has a plausible path back to performance is worth more than a note where the borrower has vanished. The potential for a workout — a negotiated resolution that avoids foreclosure, such as a loan modification, payment plan, or deed in lieu of foreclosure — can significantly improve the buyer's expected recovery and thus the price offered to the seller. If the borrower has experienced a temporary setback and is willing to work toward a solution, the note buyer may be able to reinstate the note as a performing asset within a few months, which is a much more profitable outcome than foreclosure. Notes with workout potential command a premium over notes that are heading inevitably toward foreclosure.

Title and Documentation Quality

The quality of the documentation underlying a non-performing note significantly affects its value. A non-performing note with a clean title, a properly recorded deed of trust, a complete payment history (including documentation of the default), and all original closing documents is much easier for a buyer to work with than a note with title issues, missing documents, or unclear chain of ownership. Documentation problems add cost, time, and uncertainty to the buyer's recovery process, all of which reduce the price they can offer. If you hold a non-performing note, organizing your documentation as thoroughly as possible before seeking offers can improve your outcome. Our guide on documents needed to sell a land note in Texas details what buyers look for.

Protecting Your Note's Performing Status

Early Intervention When Payments Slow

Because the value difference between performing and non-performing notes is so significant, protecting your note's performing status is one of the most financially important things you can do as a Texas land note holder. Early intervention when payments begin to slow — reaching out to the borrower at the first late payment, understanding the reason for the lateness, and working together to keep the note current — can prevent a performing note from sliding into non-performing territory. The cost of a phone call or letter is infinitely less than the 15,000 to 25,000 dollar value reduction that occurs when a note crosses the non-performing threshold.

Setting up automatic payments is one of the most effective preventive measures. Borrowers who pay through automatic bank transfers are far less likely to fall behind than those who must remember to write and mail a check each month. If your borrower is not on autopay, encouraging or requiring them to set it up can dramatically reduce the risk of missed payments. A professional loan servicer can facilitate this transition and monitor payment patterns so you are alerted early to any changes.

Professional Servicing as a Protective Measure

Having your note professionally serviced provides an additional layer of protection for its performing status. A professional servicer monitors payments, sends timely reminders and late notices, tracks payment patterns, and alerts you when issues arise. This systematic monitoring catches problems early, before they escalate into full default. The cost of servicing — typically 15 to 40 dollars per month — is a trivial investment compared to the value difference between a performing and non-performing note. For note holders who are not using a servicer, adding professional servicing is one of the highest-return investments you can make in your note's value.

Options for Note Holders with Non-Performing Notes

Selling the Non-Performing Note

If your note has already become non-performing, selling it to an experienced buyer who specializes in distressed Texas land notes is often the most practical option. Selling provides immediate cash, eliminates the cost and stress of the foreclosure process, and transfers the workout or foreclosure responsibility to the buyer. While the price will be lower than for a performing note, it may be higher than the net recovery you would achieve by foreclosing and reselling the property yourself after accounting for legal fees, holding costs, and the time value of money. Longhorn Note Buyers has extensive experience purchasing both performing and non-performing Texas land notes and can provide a fair evaluation of your note regardless of its current status. For specific guidance on selling non-performing notes, our article on selling non-performing land notes in Texas covers the process in detail.

Pursuing Foreclosure Yourself

If you have the time, resources, and willingness to manage the process, foreclosing on a non-performing note and either reselling or holding the property can potentially produce a higher total recovery than selling the note at a distressed discount. The trade-off is significant — you bear the costs of foreclosure (legal fees, trustee fees, title work), the holding costs during and after the process (property taxes, insurance, maintenance), and the time and effort of reselling the property. For some note holders, particularly those with experience in real estate and the financial capacity to carry the costs, self-foreclosure is a viable strategy. For others, the simplicity and certainty of selling the note is preferable.

Attempting a Workout Before Deciding

Before committing to either selling or foreclosing, it may be worth attempting a workout with the borrower. If the borrower is responsive and has a plausible path to resuming payments, a forbearance agreement or loan modification can restore the note to performing status — which dramatically increases its value whether you decide to keep it or sell it. Even a few months of resumed payments can shift a note from non-performing to sub-performing or performing, with a corresponding improvement in the price a buyer would offer. The key is to set clear terms and a firm timeline for the workout so that you are not indefinitely postponing a decision while the situation continues to deteriorate.

Ready to Sell Your Note?

Whether your Texas land note is performing, sub-performing, or non-performing, Longhorn Note Buyers can provide a fair, no-obligation evaluation within 24 hours. With over $46 million in Texas notes purchased — including both performing and non-performing notes — and a 100 percent close rate on every deal quoted, Longhorn has the experience and resources to handle notes in any condition. Founded by Nick McFadin, who has been buying notes since 1983, and partnered with Sandy McFadin since 2013, Longhorn Note Buyers is based in San Antonio and works exclusively in Texas. Call (210) 828-3573 or visit longhornnotebuyers.com today. Understanding what your note is worth in its current condition is the first step toward making the best financial decision, and Longhorn's quote gives you that clarity at no cost and no obligation.

Frequently Asked Questions

How much less is a non-performing note worth compared to a performing note?

The value difference is substantial. A performing Texas land note might sell for 70 to 90 percent of the remaining balance, while a non-performing note on similar collateral might sell for 30 to 60 percent of the balance. The exact gap depends on the property value, the severity and duration of the default, the borrower's status, the documentation quality, and the anticipated cost and timeline of recovery. In dollar terms, the difference can be tens of thousands of dollars on a typical Texas land note, which is why protecting a note's performing status is so financially important.

Can a non-performing note become performing again?

Yes, a non-performing note can return to performing status if the borrower resumes making regular, on-time payments. This can happen through a workout agreement, a loan modification, or simply the borrower resolving whatever financial difficulty caused the default. Once the borrower has established a sustained pattern of on-time payments — typically at least three to six months — the note can be reclassified as performing, and its value on the secondary market increases accordingly. If you are holding a non-performing note and the borrower shows signs of willingness and ability to resume payments, giving them the opportunity to do so before selling can significantly improve your financial outcome.

Who buys non-performing land notes in Texas?

Non-performing notes are purchased by specialized note buyers and investors who have the expertise, legal resources, and capital to manage workout and foreclosure situations. These buyers evaluate non-performing notes based on the expected recovery after costs, not on the income stream (which has stopped). Longhorn Note Buyers is one such buyer, with nearly two decades of experience purchasing both performing and non-performing Texas land notes. National note buyers and distressed asset funds also participate in this market. The key is to work with a buyer who has demonstrated experience with non-performing Texas notes specifically, as the legal and practical requirements are state-specific.

Should I foreclose myself or sell the non-performing note?

The best choice depends on your resources, expertise, and financial goals. Foreclosing yourself can produce a higher total recovery if you have the capacity to manage the process and resell the property, but it requires significant time, money, and effort. Selling the note provides immediate cash and eliminates all future cost and risk. For most Texas note holders, particularly those without real estate management experience or those who need cash quickly, selling the non-performing note is the more practical option. Getting a quote from an experienced buyer gives you a concrete number to compare against the estimated net recovery from self-foreclosure, helping you make an informed decision.

Does the type of property affect the value gap between performing and non-performing notes?

Yes, property type significantly affects the value gap. Notes secured by properties in high-demand areas with strong resale markets have a smaller performing-to-non-performing value gap because the buyer is confident they can recover the investment through a quick resale after foreclosure. Notes secured by remote or less marketable properties have a larger gap because the recovery process is longer and less certain. A non-performing note on a five-acre lot outside Austin is worth more than a non-performing note on a remote 40-acre tract in West Texas, all else being equal, because the Austin-area property can be resold more quickly and at a more predictable price.