Decision Framework · Special Assets

Note sale vs. workout vs. foreclosure

A workout fits a credit with a credible, documented repayment path. A discounted payoff fits an engaged borrower who can fund a settlement. A note sale fits when you want a fast, certain, discreet cash exit. Foreclosure is the slowest, costliest path and the one most exposed to carrying cost and headline risk.

Compare

Four resolution paths

Path	When it fits	Speed	Lender outcome
Workout / accommodation	Credible, documented repayment path	Varies	Keeps the credit; ongoing monitoring
Discounted payoff (DPO)	Engaged borrower who can fund a settlement	Weeks	Cash; loan retired, lien released
Note sale	You want a clean exit, fast and quiet	Weeks	Cash; loan assigned to buyer
Foreclosure to REO	Equity-rich; full recovery likely	12–24 months	Recovery net of carry, legal, disposition

How to decide

Is there a real repayment path? If yes, a workout may serve; if it is just another extension, regulators may still classify it.
Will the borrower engage and fund a settlement? If yes, a discounted payoff.
Do you simply want out, quietly and quickly? A note sale.
Is the credit equity-rich with full recovery likely and time to spare? Foreclosure may net more — model it with the loan-sale-vs-foreclosure calculator.

Common questions

When is a note sale better than a workout?

When the workout would be another extension without a credible repayment path — which invites adverse classification — and you would rather convert the credit to certain cash now than keep monitoring it.

When is foreclosure the right call?

When the credit is equity-rich, full recovery is likely, and you have the time and appetite for the legal process and the REO carry that follow.

How do I compare the economics?

Use the loan-sale-vs-foreclosure calculator to weigh a cash sale today against the present value of a foreclosure recovery net of carry, legal, and disposition cost.