Forgiving Past Due Amounts

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I have a question I need some help with from the more experienced Brokers, Mortgage Bankers and Real Estate Professionals in the forum.

I have a client that is considering purchasing non performing notes from some of my lenders I work with for a substantial discount on the unpaid balance.

They want to then go back to the noteholders and forgive the past due amount and restructure the note at a higher interest rate for forgiving the past due amounts.

While this is a really sound idea, I am curious to know if it is legal, or furthermore, if there are any issues with them selling off the notes at a later date as performing once they are restructured.

Just curious to know if any of the others have any experience with this. I know banks use this all the time, but I haven't heard of private investors doing it.