Note-on-note financing: put leverage on the loans you own

Note-on-note financing (also called loan-on-loan, note financing or lender finance) is a loan to the holder of a mortgage note, secured by a pledge or collateral assignment of that note and its underlying mortgage or deed of trust. The borrower is a lender, debt fund or note investor, and the collateral is the loan it owns rather than the real estate directly.

Private and hard-money lenders that want to recycle capital, debt funds adding back leverage, note investors buying performing or non-performing loans, family offices and sellers holding seller-financing notes who want cash without selling the note.

Advance rates vary with the quality of the note and the property. Published ranges run roughly 50% to 80% of the note's unpaid balance on performing first-lien loans, typically also capped by the underlying property's value. Non-performing notes are usually sized against the purchase price rather than the balance.

Note-on-note usually finances one loan or a small group of loans. A warehouse line or credit facility is a revolving facility that lets an originator fund many loans and pledge them as they close, with eligibility criteria, concentration limits and a borrowing base.

Yes. NPL acquisition financing lends part of the purchase price of a discounted defaulted note, secured by the note and its mortgage. Lenders look at the discount to unpaid balance and to property value, the path to resolution (modification, payoff, foreclosure or deed-in-lieu) and the investor's track record.

A promissory note and loan agreement between you and the note-on-note lender, an allonge or endorsement of the underlying note, a collateral assignment of the mortgage or deed of trust, a pledge of the entity that owns the note, UCC filings and usually a custodian holding the original note. A servicer collects payments on the underlying loan.

No. In a participation or A/B note structure, you sell part of the loan itself to another lender. In note-on-note, you keep the whole loan and borrow against it. Both raise capital from an existing loan; we'll compare them for your situation.

You, as the note owner, typically control the workout, subject to the note-on-note lender's consent rights, and must keep paying your own loan. Agreements define cure rights, how foreclosure proceeds are applied and when the note-on-note lender can step in.

Often yes, if the note is a first lien on real estate with adequate equity, a reasonable payment history and standard documentation. It's an alternative to selling the note at a discount.

From smaller single-note financings for individual note investors to institutional credit facilities for debt funds and large one-off loan-on-loan transactions. Our database includes lenders across that range.