What are you purchasing when you buy a note?
You are buying the debt instrument — the I.O.U. — secured by the mortgage. You literally are buying paper. You are purchasing the rights to collect on that debt instrument. And should the borrower fail to pay, you have the right to foreclose on that collateral. When you purchase a note, you receive the note and mortgage. In many states rather than a Mortgage a Deed of Trust (or Potomac Mortgage) may be used. Although a deed of trust serves the same purpose as a type of security, it differs from a mortgage. A deed of trust is an arrangement among three parties: the borrower, the lender, and an impartial trustee. In exchange for a loan of money from the lender, the borrower places legal title to real property in the hands of the trustee who holds it for the benefit of the lender, named in the deed as the beneficiary. The borrower retains equitable title to, and possession of, the property.