Best Execution
Also known as: optimal execution, best execution strategy
Best execution is the practice of evaluating all available resolution and disposition paths for a note or portfolio and selecting the one that produces the highest risk-adjusted return. Rather than defaulting to a single strategy, best execution requires the investor to compare outcomes across modification, discounted payoff, deed-in-lieu, foreclosure, note sale, and other options — then choose the path that maximizes net proceeds relative to time, cost, and risk.
Best Execution vs. Best Price
Best execution and best price are related but distinct concepts. Best price asks: "What is the highest dollar amount I can get?" Best execution asks: "What is the best overall outcome when I factor in speed, cost, risk, and certainty?"
| Factor | Best Price | Best Execution |
|---|---|---|
| Primary goal | Maximize sale price or recovery amount | Maximize risk-adjusted net return |
| Time horizon | May require longer hold or marketing period | Considers time value of money |
| Cost consideration | Secondary | Central — legal fees, servicing, carrying costs |
| Risk tolerance | Accepts uncertainty for higher potential price | Favors certainty and capital efficiency |
| Example | Holding out for a full payoff from the borrower | Accepting a DPO today to redeploy capital faster |
A note investor blog post on the topic — Best Price vs. Best Execution in Whole Loan Sales — explores this distinction in greater detail.
Applying Best Execution to Note Resolutions
Every non-performing loan has multiple potential resolution paths. Best execution means modeling each one and comparing the expected IRR or ROI after accounting for all costs and timelines.
| Resolution Path | Potential Return | Timeline | Key Risk |
|---|---|---|---|
| Loan modification | High (long-term cash flow) | 3-6 months to re-perform | Borrower re-defaults |
| Discounted payoff | Moderate-high (lump sum) | 1-3 months | Borrower cannot access funds |
| Deed-in-lieu | Varies (depends on property value) | 2-4 months | Property condition, title issues |
| Foreclosure | Varies (REO sale price minus costs) | 6-36 months (state dependent) | Legal costs, timeline uncertainty |
| Note sale | Lower (quick exit) | 1-4 weeks | Selling at a discount to your basis |
Best Execution at the Portfolio Level
Best execution becomes even more important when managing a portfolio. Not every note warrants the same resolution strategy. Some loans are best resolved cooperatively with the borrower, while others are better sold to another investor who specializes in that asset type or geography. Portfolio-level best execution means allocating your time, legal budget, and capital to the notes where you have the highest expected return per dollar and hour invested — and selling or trading the rest.
This is why experienced note investors regularly sell performing and non-performing notes from their portfolios. Selling is not an admission of failure — it is a best execution decision to redeploy capital into higher-returning opportunities.
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