Basically, when someone has gone months without paying their mortgage, the note is considered "non-performing" by the bank.  There is no money coming in.  At this point, it is better for a myriad of reasons for the bank to sell this debt off at pennies on the dollar than to keep the liability on their books. 
 
So, for instance, it's a 100k note, and the lender is Wells Fargo.  The homeowner, Joe Seller, hasn't paid their mortgage in 3 months, and the bank is "losing" money.  John the Bank, INC. goes to Wells and says she will buy the note for 60k.  So, John the Bank, INC. buys the debt for 60k, and now Joe Seller is responsible for paying the agreed mortgage to John the Bank, INC.  Now, at this point, John the Bank, INC. can decide to short sale the property, do a loan mod for Joe if he wants to stay in the house, or do a died in lieu of foreclosure where Joe gives John the Bank, INC. the property outright and hopefully gets a little cash from John the Bank, INC. for moving costs.  But Joe Seller gets to walk away from the property.  The day that John the Bank, INC. becomes the bank, anything that is negotiated between her and the seller does NOT get reported on CREDIT.  This is happening with a private lender, and the homeowner can escape MORE negative effects that could hurt them if their bank was still a traditional lender like Wells Fargo. 

This is just an overview.  Please contact OTC with more detailed questions at 877.255.2770!