Foreclosure produces a recovery only after months of carrying costs, legal expense, and disposition cost — discounted to today's dollars. This tool computes the present value of the foreclosure path and the breakeven price at which selling the loan now is the better outcome.
Estimates only, for illustration; not financial, legal, tax, or accounting advice. A definitive number requires the loan file and collateral review.
The model compares two outcomes on the same credit:
Foreclosure path. The lender forecloses and sells the collateral as REO after m months. Net recovery at sale = REO value − legal/foreclosure cost − disposition cost − (monthly carrying cost × m). Because that recovery arrives in the future, it is discounted to present value at the institution's cost of capital r:
PVforeclosure = ( REO − legal − disposition − carry·m ) ÷ (1 + r/12)m
Sale path. A cash sale of the loan settles now, so its value is the sale price in today's dollars, with no further carry, legal cost, or timeline risk.
Breakeven. The breakeven price is the cash offer today that equals the present value of the foreclosure path. At or above it, selling the loan now is the stronger economic outcome — before accounting for the reduced execution risk, examiner exposure, reserve relief, and management time a sale also delivers.
Simplifications: carrying costs are netted at the terminal date rather than discounted month-by-month (a small, conservative approximation), and price risk in the eventual REO sale is not separately modeled — both tend to understate the advantage of a certain sale today.
It comes down to the breakeven price. Foreclosure recovers value only after 12–24 months of carry, legal expense, and disposition cost, discounted to present value. If a buyer pays at or above the present value of that recovery today, selling now wins — with far less risk and management cost.
Property taxes, insurance, maintenance and security, legal and receiver fees, and — once it becomes lender-owned real estate — the capital and reserve treatment of a classified asset. See the OREO carrying-cost calculator.
Standing Bid Capital is a direct principal buyer of commercial real-estate loans, discounted payoffs, and REO, $250K–$25M, all-cash, with no re-trade. Request a confidential review.