Financing the Purchase of a Commercial Loan

An investor identifies an opportunity to purchase a commercial mortgage note directly from a bank, a special servicer, or another lender, rather than buying the property that secures it. The note might be performing and simply mispriced by the current holder, or it might be non-performing and available at a discount to unpaid balance.

Either way, the investor needs to close on the note purchase itself, often on a timeline set by the seller, and few lenders are set up to finance the purchase of a loan rather than a piece of real estate, even though the underlying collateral is the same commercial property.

A bridge loan can be structured against the purchase of a note, sized to the value of the underlying collateral and the strength of the loan documents rather than to a conventional purchase price. The lender is effectively underwriting the real estate behind the note, with the note purchase itself as the transaction being financed.

Mezzanine debt or preferred equity can supplement the senior financing when the note purchase price, plus any capital needed to resolve or restructure the loan after acquisition, exceeds what the senior piece alone will support. This is particularly common with non-performing notes that require a workout plan.

A provider evaluates the underlying collateral much as it would for a direct property purchase, but adds a second layer of analysis on the loan documents themselves: are they enforceable, is the lien position clean, and what does foreclosure or workout look like under the applicable state law if the borrower does not perform.

For a non-performing note specifically, the investor’s plan for resolution, whether foreclosure, deed in lieu, loan modification, or a consensual sale, is central to underwriting, since the path to realizing value is less direct than simply owning and operating a stabilized property.

The choice to pursue note acquisition financing over a direct property purchase usually comes down to pricing and control: notes can trade at a discount to the underlying collateral value, but the investor needs a clear resolution strategy and financing partners comfortable with loan-level, not just property-level, diligence.

Note purchases carry legal and title risk that a straightforward property acquisition does not: defects in the loan documents, competing liens, or borrower defenses can all complicate resolution and are not always visible until diligence is well underway. A workout that takes longer than planned also extends the carry cost of the acquisition financing.

Because the collateral is once removed, financing partners are often more conservative on leverage for a note purchase than they would be for a direct property acquisition, which means the investor may need to bring more equity into the transaction relative to the underlying real estate value.

Because loan-level diligence takes longer than a typical property review, a request moves faster when the investor has already reviewed the loan file and can speak clearly to lien position, documentation, and the intended resolution path for the note.