Every US state has their own set of laws governing foreclosures. Some states require a lawsuit to be filed in court (judicial states), and the court oversees foreclosure proceedings. In non-judicial states, proof of default is enough to start foreclosure proceedings, which are handled outside of the courtroom.
As PeerStreet moves down the legal route of foreclosure, our Asset Management team will simultaneously attempt to negotiate a deal (“workout”) with the borrower as part of our effort to resolve a loan payment issue.
During a foreclosure, the property typically goes to a foreclosure auction. As the holder of the first position loan, PeerStreet sets the minimum bid price at the auction. In preparing our opening bid, PeerStreet takes into account, among other factors, the principal balance of the loan, accrued interest and late fees, foreclosure-related expenses, updated valuation of the property, etc. If a third party outbids PeerStreet at the auction, investors will receive their pro rata share of the sale proceeds accordingly.
If PeerStreet is the highest bidder, we take ownership of the property and seek the optimal balance between speed and return—selling the property as quickly as possible, and for as much as possible, in order to achieve the best return for investors. Proceeds from the sale of the property would be distributed pro rata to each investor, minus the costs and fees incurred to foreclose on and sell the property.
PeerStreet seeks to return investment principal and interest due as if the loan was paid off in full as expected, however the amount that PeerStreet recovers might be more than or less than that amount, depending on the specifics of each individual foreclosure. Before distribution of principal, interest, and default interest payments (if applicable) to investors, PeerStreet deducts foreclosure costs and associated REO fees incurred. At the end of a foreclosure, there is no guarantee that those expenses will be covered in their entirety, nor that all principal and/or loan interest will be recouped.