"This paper will provide economic and structural reasons for the upcoming of non and sub performing real estate loans in Germany and will compare the German market to the U.S.- and other relevant NPL-markets. As German banks are currently facing the new regulations of Basel II as well as strong global competition, non and sub performing loans have risen to a subject of high interest. Therefore, this paper asks the question of the optimal management of distressed loans and reformulates it into the problem of the vertical boundaries of companies. Transaction cost economics are used in order to analyse under which circumstances -""make"" (own work out department of a bank) // -""buy"" (external servicer) or // -""sell"" (e.g. opportunity funds) // options are dominant strategies for German banks in order to solve the NPL-problem. "