Bankruptcy & Default

The automatic stay halts all foreclosure, collection, and creditor contact the moment a borrower files bankruptcy. Note investors must comply immediately.

Bankruptcy is a federal court proceeding providing debt relief via Chapter 7 liquidation or Chapter 13 repayment. It triggers an automatic stay and.

Chapter 13 bankruptcy lets borrowers repay debts over 3-5 years while keeping property. It can strip junior liens, but two-thirds of plans are dismissed.

Chapter 7 bankruptcy liquidates non-exempt assets and discharges unsecured debts. Secured mortgage liens survive, remaining enforceable against the.

A voluntary petition initiates bankruptcy, disclosing the debtor's assets, liabilities, and income — a key source of borrower intel for note investors.

A charge-off is a bank writing down a bad loan, not forgiving it. The debt and lien survive. Most NPLs on the secondary market are post-charge-off.

A corporate resolution authorizes a specific person to act on behalf of an LLC or corporation. Note investors need them to prove signing authority on.

A cram down reduces a secured lien to the property's current market value in Chapter 13 bankruptcy. Junior lien holders face the greatest cramdown risk.

Default occurs when a borrower fails to meet loan obligations, most commonly by missing payments. For note investors, defaults create discounted.

A deficiency balance is the remaining debt after collateral is sold for less than owed. Deficiency judgment rights vary by state law.

A delinquent loan has missed scheduled payments. Loans 90+ days past due are classified as non-performing — the threshold where lenders consider.

A demand letter (NOI) is a formal attorney notice informing a borrower of default and intent to foreclose. It is the highest-converting borrower outreach.

A discharge releases a borrower from personal liability on debts in bankruptcy but does not extinguish the mortgage lien — a critical distinction for.

A lien strip is a bankruptcy action that removes a junior lien when senior debt exceeds the property value, making it unsecured.

A motion for relief (MFR) is a filing in bankruptcy court asking the judge to lift the automatic stay so the note holder can proceed with foreclosure.

A non-performing loan (NPL) is a mortgage where payments have stopped for 90+ days. NPLs trade at deep discounts on the secondary note market.

PACER is the federal court system's online portal for accessing bankruptcy filings, dockets, and documents — a key due diligence tool for note investors.

A proof of claim is a creditor filing in bankruptcy court documenting the amount and secured status of a debt. Timely filing is critical for note.

Reaffirmation is a bankruptcy agreement where the borrower voluntarily keeps personal liability on a mortgage debt that would otherwise be discharged.

A sub-performing note is a mortgage loan with inconsistent or partial payments, sitting between performing and non-performing status for note investors.

Wiped means a lien has been extinguished by a senior or tax foreclosure sale, leaving the former holder with an unsecured claim or total loss.