For most troubled commercial real estate loans, a note sale is the fastest exit because the bank can close in weeks without going through foreclosure. A discounted payoff can be equally fast when the borrower has a real buyer or refinance lined up. Foreclosing and then selling the property as OREO is usually the slowest, because the bank must complete the court process in New York, New Jersey or Connecticut and then market the property.
What is a note sale?
In a note sale, the bank sells the loan itself. The buyer takes over the borrower relationship and any collection or foreclosure. The bank receives cash at closing and the loan leaves its books. The timeline is mainly driven by the bank's file preparation and approvals.
The trade-off is price: buyers discount for the time and cost they will absorb. But the bank also avoids those costs, so the gap between a note sale price and the net recovery from foreclosing is often smaller than it looks at first.
What is an OREO sale?
OREO (other real estate owned) is property the bank has taken back, usually through foreclosure or a deed in lieu. Once the bank owns it, the bank pays taxes, insurance and maintenance, manages any tenants, and markets the property for sale.
In the three states we focus on, foreclosure is a judicial process. That means filings, service, possible defenses, a judgment and a referee's, sheriff's or committee sale. The timeline varies widely and is outside the bank's control. A deed in lieu shortens it if the borrower cooperates.
What is a discounted payoff?
In a discounted payoff (DPO), the bank accepts less than the full balance from the borrower to release the loan. The borrower usually funds it by selling the property or refinancing. It can be fast and clean, but only if the borrower's source of funds is real. A written offer from a buyer with its own capital is what makes a DPO dependable.
Which one recovers the most?
There is no universal answer. Foreclosure plus an OREO sale can sometimes recover more on a strong property in a good market, but it carries time, cost and property risk. A note sale gives certainty now. A DPO often lands between the two. The right choice depends on the collateral, the borrower's cooperation, the bank's capacity and its regulatory position.
How should a bank decide?
Estimate the net present recovery for each path: expected sale price, minus legal, carrying and selling costs, adjusted for time and the chance things go wrong. Then compare that to firm offers in hand. Getting a written offer on the note and on the property early gives the bank real numbers to compare instead of estimates.
Belcz Group can quote both: a note purchase price and, where the borrower is willing, a property purchase that funds a discounted payoff.