Short answer
Often, yes, if they pursue the borrower themselves. A non-performing note's value is the workout, and collecting the balance, negotiating a settlement, or chasing a deficiency looks like debt collection to state regulators. Several states require a collection agency license to collect defaulted debt, and some apply debt buyer statutes to purchasers of defaulted paper even though they own it. Investors who stay passive, placing the workout with licensed servicers and collection firms, generally avoid the requirement.
The trap in non-performing note investing is assuming ownership immunizes the collection activity. Many state collection statutes reach anyone collecting a debt that was in default when acquired, which describes a purchased non-performing note exactly. The same logic drives state debt buyer laws. Whether the license lands on you turns on posture: an active investor contacting borrowers, running settlements, and managing the foreclosure timeline in-house is doing the licensed activity; a passive investor who buys the paper and hires licensed servicers and collection agencies to do the borrower-facing work usually is not, though a minority of states license passive debt buyers as well.
Workouts blur into servicing too: modifications and forbearance agreements are servicing activity in most states, so a mixed book commonly ends with servicer licenses in some states and collection authority in others. The passive and active postures are compared in depth at /passive-debt-buyer-licensing and /active-debt-buyer-licensing, and the note-specific analysis, including New York City's separate collection licensing layer, lives on our /note-investors-licensing pillar.
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