First let me quickly explain what notes are. A note is a legal document and the explanation per the free legal dictionary is as follows: “The mortgage note, in which the borrower promises to repay the debt, sets out the terms of the transaction: the amount of the debt, the mortgage due date, the rate of interest, the amount of monthly payments”.

The bottom line is that Mortgage-backed notes represent the legal promise by the borrower to repay a mortgage loan that they took out to purchase real property.

Any mortgage backed note can be sold by the note holder to a third party. The borrower’s obligation to repay the mortgage backed note does not vanish with the sale. It only changes the note holder. The borrower still has to make the payment.

Investing in mortgage backed notes can be lucrative and can bring long-term income over the period of the note terms or until the borrower satisfied the note in full either by refinance or payment in full.

When investing in mortgage backed notes you also need to be prepared to possible modify your note or foreclose on a borrower when a borrower falls behind on their mortgage payment. Each state has different rules and regulations along with the federal mortgage rules. It is best for you to consult an attorney, that is savvy with the mortgage rules and regulations within your state, for information on how to proceed when your borrower is not making their monthly payment.