Sell a Non-Performing Note in Texas — Your Options

A non-performing or defaulted promissory note in Texas can still be sold to a direct buyer, though the price will reflect the additional risk and potential foreclosure costs. Many note holders in this situation find that selling at a discount is preferable to the time, expense, and uncertainty of pursuing foreclosure themselves. Longhorn Note Buyers in San Antonio, a direct buyer with over four decades of experience and more than $47 million in Texas notes purchased, offers free valuations within 24 hours and closes with no broker commissions.

This guide explains your options when a borrower stops paying on your Texas promissory note, including how to evaluate whether selling or foreclosing makes more financial sense.

Understanding Why Notes Become Non-Performing

Before exploring your options, it's helpful to understand the common reasons borrowers stop paying on their notes. This context matters because the reason behind the default influences both the likely outcome and the value of your note to a potential buyer. Not all defaults are the same, and the story behind the numbers affects how your note will be priced and what the buyer plans to do with it after purchasing.

Financial Hardship — The Most Common Cause

Job loss, medical emergencies, divorce, and other financial disruptions are the most frequent causes of note default. In these situations, the borrower may have every intention of paying but simply lacks the means to do so. Many of these borrowers will eventually recover financially and resume paying if given the opportunity through a modification or workout. Others will never recover and the note will ultimately need to be resolved through foreclosure or a deed in lieu of foreclosure. The distinction matters to note buyers because a borrower experiencing temporary hardship represents a very different risk profile than one who has permanently abandoned the obligation. Notes where the default appears to be caused by temporary financial hardship often command higher prices because there's a reasonable chance the borrower can be brought back to performing status.

Strategic Default — Walking Away

In some cases, particularly with vacant land or investment properties, borrowers make a calculated decision to stop paying because they no longer see value in the property. This is most common when property values have declined and the borrower owes more than the property is worth, or when the borrower purchased land speculatively and lost interest in the investment. Strategic defaults are more common with land notes than with residential mortgage notes because borrowers have less emotional and practical attachment to vacant land than to their home. When a default appears to be strategic, the buyer knows that foreclosure is almost certainly the resolution path, and they price the note accordingly based on the property's value minus the anticipated costs and timeline of foreclosure.

Borrower Disputes and Communication Breakdown

Some defaults arise from disputes between the borrower and the note holder — disagreements about the terms of the note, the condition of the property, or perceived failures by the seller. In other cases, communication has simply broken down and the borrower may not be responsive to the note holder's attempts at contact. These situations can be particularly frustrating for note holders because the default may not be about money at all but about a relationship that has soured. Professional note buyers are often better positioned to resolve these situations because they bring a fresh perspective and professional communication practices that can break through the interpersonal dynamics that may be contributing to the default.

Your Options When Holding a Non-Performing Note in Texas

As a holder of a non-performing note in Texas, you have several paths forward. Each option has different financial implications, time requirements, risk profiles, and emotional costs. Understanding all of your options before making a decision ensures you choose the path that best fits your specific situation, resources, and goals.

Option One: Sell the Non-Performing Note for Cash

Selling the non-performing note transfers the entire situation — the default, the property, the borrower, and the legal complexity — to a professional buyer in exchange for a lump sum of cash. This is the fastest path to resolution and the option that requires the least ongoing effort from you. The purchase price will be lower than for a performing note, typically ranging from 40 to 70 cents on the dollar of the remaining balance depending on the property value, the likelihood of borrower rehabilitation, and the anticipated costs and timeline of foreclosure. For many note holders, accepting this discount is preferable to investing months of time, thousands of dollars in legal fees, and significant emotional energy into pursuing the borrower themselves. The transaction process is similar to selling a performing note — you provide your documents, the buyer conducts due diligence, and the deal closes through a title company — though the due diligence may take slightly longer as the buyer evaluates the default situation and the foreclosure options.

Option Two: Pursue Foreclosure Yourself

Texas offers a non-judicial foreclosure process that is faster and less expensive than the judicial foreclosure required in many other states. The Texas non-judicial foreclosure process can be completed in as little as 60 to 90 days from the date of the first notice, though the actual timeline is often longer when you factor in the required notices, waiting periods, and the logistics of the trustee sale. The costs typically include attorney fees of $2,000 to $5,000, trustee fees, publication costs, and potential title curative work. If the foreclosure is successful, you end up owning the property, which you can then sell on the open market or hold. The advantage of this path is that if the property has significant equity, you may recover more than you would by selling the non-performing note. The disadvantages are the time, cost, uncertainty, and stress involved, plus the fact that you'll then own a property that needs to be managed, maintained, and eventually sold. For a thorough walkthrough of this process, see our guide on the foreclosure process for land notes in Texas.

Option Three: Attempt a Workout With the Borrower

Before selling or foreclosing, some note holders attempt to work directly with the borrower to resolve the default. This might involve a loan modification that reduces the payment amount or interest rate, a forbearance agreement that temporarily suspends payments while the borrower recovers financially, a repayment plan that adds the missed payments to the end of the loan or spreads them across future payments, or a deed in lieu of foreclosure where the borrower voluntarily transfers the property to avoid the formal foreclosure process. Workouts can be effective, but they require a cooperative borrower and often require legal assistance to ensure the modification is properly documented and enforceable. If the borrower is unresponsive, hostile, or clearly unable to resume payments under any terms, a workout is unlikely to succeed and you're better off pursuing other options.

Option Four: Do Nothing and Wait

Some note holders choose to wait, hoping the borrower will resume payments on their own. While this does happen occasionally, it's generally not a recommended strategy. Each month of non-payment increases your financial loss, may affect the property's condition if it's being neglected, and allows the borrower's situation to potentially deteriorate further. In Texas, the statute of limitations on enforcing a promissory note is six years from the date of default, and on foreclosing under a deed of trust it's four years from the date the debt matures or is accelerated. Waiting too long can actually jeopardize your legal rights. If you're going to act — whether by selling, foreclosing, or pursuing a workout — sooner is almost always better than later.

How Non-Performing Notes Are Valued by Buyers

The pricing of non-performing notes follows a different logic than performing notes. Instead of valuing the cash flow stream (since the borrower isn't paying), buyers value the note primarily based on the underlying property and the expected cost and timeline of resolution. Understanding this valuation approach helps you evaluate offers and understand why a buyer is willing to pay what they're offering.

Property Value Is the Primary Driver

For a non-performing note, the property securing the note becomes the primary source of value because the income stream has stopped. The buyer is essentially pricing the note based on what they believe they can recover from the property, minus the costs of obtaining that recovery. If the property is worth $200,000 and the remaining balance on the note is $120,000, the buyer has a strong equity cushion that provides room for costs and still leaves a profitable outcome. If the property is worth $130,000 and the balance is $120,000, the margins are much thinner and the price will be lower. The current market value of the property, not the remaining note balance, is the starting point for non-performing note valuation.

Resolution Costs and Timeline

The buyer must estimate and deduct the costs of resolving the default. In Texas, these typically include attorney and trustee fees for foreclosure of $3,000 to $8,000, property preservation costs if the property is vacant, potential property tax and insurance arrearages that may need to be cured, costs of selling the property after foreclosure including real estate commissions and closing costs, and the carrying costs of holding the property during the resolution period. These costs can easily total $15,000 to $30,000 or more, depending on the specifics. The buyer also factors in the time required for resolution — typically 4 to 8 months for a Texas non-judicial foreclosure and subsequent property sale — and the opportunity cost of their capital during that period.

A Concrete Non-Performing Note Pricing Example

Consider a non-performing note with a remaining balance of $95,000, where the borrower has not paid in four months. The property is a single-family home worth approximately $165,000. The buyer estimates foreclosure costs of $5,000, property preservation and carrying costs of $4,000, and post-foreclosure sale costs of $12,000 (commissions plus closing costs), for total resolution costs of approximately $21,000. After a successful foreclosure and sale, the buyer expects net proceeds of approximately $144,000 ($165,000 minus $21,000). To earn their required return and account for the risk that the process may cost more or take longer than expected, the buyer might offer $60,000 to $70,000 for the note — roughly 63 to 74 cents on the dollar of the remaining balance. While this is a significant discount from the note's face value, it provides the note holder with immediate cash and eliminates months of uncertainty, expense, and stress.

What to Expect When Selling a Non-Performing Note in Texas

The process of selling a non-performing note follows the same general structure as selling a performing one, with some additional elements driven by the default situation. Knowing what to expect at each stage helps you prepare and ensures the process moves as smoothly as possible given the circumstances.

The Initial Evaluation and Offer

When you contact a buyer about a non-performing note, they'll ask for all the standard note information plus specific details about the default — when payments stopped, whether the borrower has been contacted, whether any default notices have been sent, and what you know about the borrower's current situation and the property's condition. Based on this information, the buyer will provide a preliminary offer, though it may take slightly longer than for a performing note because the buyer needs to assess the default scenario. Expect the offer within 24 to 48 hours from an experienced buyer.

Enhanced Due Diligence

Due diligence on a non-performing note is more intensive than on a performing one. In addition to the standard title search, document review, and property valuation, the buyer will evaluate the borrower's financial situation to the extent possible, research the foreclosure timeline and costs for the specific property and county, assess the property's physical condition more carefully since the defaulting borrower may not be maintaining it, review any default notices or communications that have been sent, and evaluate whether a workout or modification might bring the borrower back to performing status. This enhanced due diligence typically adds one to two weeks to the standard timeline, with most non-performing note transactions closing in four to six weeks.

Closing and Transfer

The closing process is essentially the same as for a performing note — assignment documents are prepared and signed, and the buyer wires the purchase funds. The key difference is that along with the note assignment, the buyer takes over any pending default actions and inherits the right to pursue all remedies, including foreclosure. After closing, any communications with the borrower will come from the new note holder, and you are completely removed from the situation.

Ready to Sell Your Note?

If you're holding a non-performing note in Texas and you're ready to move on, Longhorn Note Buyers has the experience and expertise to evaluate your situation fairly and close quickly. We've been purchasing Texas notes since 2007, including non-performing and sub-performing notes, and our founding partner Nick McFadin brings over 40 years of note buying experience to every transaction. We understand the complexity of distressed notes and we price them honestly and transparently. With over $46 million in Texas notes purchased and a 100 percent close rate, we deliver on every commitment we make.

Call us today at (210) 828-3573 or visit longhornnotebuyers.com to discuss your non-performing note and get a free, no-obligation cash offer. We'll evaluate your situation, explain your options, and give you a fair price if selling is the right move for you. You don't have to deal with this alone — let an experienced Texas note buyer take it from here.

Frequently Asked Questions About Selling a Non-Performing Note in Texas

How much can I get for a non-performing note in Texas?

Non-performing notes in Texas typically sell for 40 to 70 cents on the dollar of the remaining principal balance, though the range can be wider depending on the specific circumstances. The primary factors driving the price are the property's current market value, the remaining note balance (which determines the LTV), the estimated costs and timeline of foreclosure, and the property's condition and marketability. Notes with strong equity positions — where the property is worth significantly more than the note balance — command prices at the higher end of the range. Notes where the property value barely covers the note balance and resolution costs receive lower offers. The only way to know what your specific note is worth is to get a quote from an experienced non-performing note buyer.

Should I start foreclosure before trying to sell the note?

This depends on your goals and timeline. Starting the foreclosure process before selling can actually increase the value of your non-performing note because it demonstrates that you've taken formal action and moved the resolution process forward. A note with a pending foreclosure that's already past the notice stage is further along the resolution timeline, which saves the buyer time and money. However, starting foreclosure also commits you to a process that involves legal costs, and if you ultimately sell the note, the buyer may not reimburse all of those costs. A middle-ground approach is to send the required default and acceleration notices — which is a precursor to foreclosure and costs very little — before approaching buyers. This shows you've acted formally and preserves your foreclosure timeline.

Can I sell a non-performing note if I've already started foreclosure?

Yes, you can sell a non-performing note at any stage of the foreclosure process — before the first notice, during the notice period, or even up to the date of the trustee sale. The pending foreclosure action transfers to the buyer along with the note and deed of trust. In fact, many buyers prefer notes that are already in the foreclosure pipeline because it shortens their resolution timeline. If you've invested money in the foreclosure process, discuss this with potential buyers — some may be willing to reimburse your costs as part of the transaction, especially if the foreclosure is well-advanced.

What if the borrower starts paying again after I've agreed to sell the note?

If the borrower resumes payments after you've accepted a buyer's offer but before closing, you should immediately notify the buyer. Resumed payments are actually good news for everyone — a borrower who starts paying again makes the note more valuable. The buyer may adjust their offer upward to reflect the improved status, or you may decide to reconsider selling if the borrower appears to have genuinely resolved their issues. Until the sale actually closes, you still own the note and can change your mind about selling. However, be cautious about assuming that one or two catch-up payments mean the problem is permanently solved — many borrowers who resume paying after a default will default again within a few months.

What happens to the borrower after I sell the non-performing note?

After you sell the note, the new note holder takes over all communication and enforcement actions with the borrower. Many professional note buyers actually prefer to try to work with the borrower before resorting to foreclosure, since a rehabilitated performing note is more valuable than a foreclosed property. The borrower may be offered a modification, a repayment plan, or other workout options that they weren't offered before. In some cases, the borrower's experience actually improves after the sale because they're now working with a professional who has established processes for handling defaults. If a workout isn't possible, the buyer will proceed with foreclosure. In either case, you're completely removed from the situation after closing and have no further obligations or involvement with the borrower or the property.