A note simply refers to a promise to pay, and in our case it’s always backed by residential real estate. This can be in the form of a mortgage, deed of trust, or seller financing.
When someone wants to buy a house, they typically go to the bank and get a loan in order to be able to make that kind of purchase. At some point, and for all kinds of reasons, banks will sell these loans in bulk to large hedge funds. These hedge funds will then select the loans they want to keep and sell those outside of their buying parameters in order to recapitalize.