Workings
Example loan. Names and figures are illustrative.
These are the calculations behind the nine choices. Each result is the present value of the cash the bank receives, and it is the figure in the one-loan table.
How a dollar is counted
The balance is $18,310,000 after the owner's $250,000 paydown. That paydown is already in hand, so it is not added again.
Cash at the end of month m is divided by (1 + 0.0644/12)m. The monthly rate is 6.44% divided by 12, the same rate as a new loan: the Secured Overnight Financing Rate of 3.94% on October 29, 2026, plus an example spread of 2.50 points.
While the owner still has the property, the bank receives the contractual interest, $80,106.25 a month. While the bank or a receiver has it, the bank receives the property's net income, $85,260 a month, and pays that path's example costs. The sale net is $17,110,800, after the example 3% cost on the $17,640,000 value.
An example price miss is 10% under that value. The 3% cost then applies to the lower price: 17,640,000 × 0.90 × 0.97 = $15,399,720.
Chances, periods, legal costs, and the receiver cost are examples. Each choice is weighted by the chance it fails, and the fallback is the path named on the loan page.
The nine results
| Choice | Value to the bank today | Example chance it fails |
|---|---|---|
| A property sale | $16,821,328 | 30%. Foreclosure starts after six months. |
| Deed-in-lieu | $16,760,204 | 40%. Foreclosure starts now. |
| Forbearance | $16,708,671 | 10%. Payments stop at month four, then foreclosure. |
| Extend | $16,643,986 | 15%. Payments stop at month six, then foreclosure. |
| Foreclosure | $16,352,007 | 20%. The resale nets $15,399,720. |
| Modify | $16,204,039 | 25%. The later sale nets $15,399,720. |
| Sell the loan | $16,030,603 | 40%. A property sale starts after six months. |
| Discounted payoff | $14,768,014 | 50%. A property sale starts after three months. |
| New investor money | Not possible on these figures | The investor's check is $670,000 more than the equity. |
The one-loan table rounds these to the nearest hundredth of a million. $16,821,328 is $16.82 million.
Foreclosure, $16,352,007
The example period is 18 months. A receiver costs an example $7,500 a month for the first 12 months, $90,000. Legal cost is an example $250,000, paid at the end of month one. The bank receives $85,260 a month for all 18 months.
Eight times in ten the sale at month 18 nets $17,110,800. Two times in ten it nets $15,399,720. The same income and the same example costs apply to both. The weighted result is $16,352,007. The other choices that fall through use this figure, deferred to the month foreclosure starts.
A property sale, $16,821,328
Six months of interest come to $471,737. The sale at month six, $17,110,800, is worth $16,570,035 today. Together that is $17,041,772 when the sale closes.
When it does not, the bank has still received the six months of interest, and foreclosure then starts. That branch is worth $16,306,959. The result is 0.70 × 17,041,772 + 0.30 × 16,306,959 = $16,821,328.
Deed-in-lieu, $16,760,204
For six months the bank receives the property's income and then sells at the example net. The example legal cost is $40,000 at the end of month one. That path is worth $17,032,336.
If the owner does not agree, foreclosure starts now, worth $16,352,007. The result is 0.60 × 17,032,336 + 0.40 × 16,352,007 = $16,760,204.
Forbearance, $16,708,671
Nine times in ten the bank receives seven months of interest, $548,898, and then the property sale starts. That property sale is the $16,821,328 above, discounted seven months. Once in ten, payments stop at month four. Four months of interest are $316,172, and foreclosure starts then. The weighted result is $16,708,671.
Extend, $16,643,986
Eighty-five times in a hundred the bank receives twelve months of interest, $928,566, and then the property sale starts. That property sale is discounted a full year. Fifteen times in a hundred, payments stop at month six, the bank has the same $471,737 of interest, and foreclosure starts. The weighted result is $16,643,986.
Modify, $16,204,039
The $1,199,200 charge-off is not cash. The $12,709,565 note pays 6.44%, so at this discount rate it is worth its face if the sale repays it. The $4,401,235 second note pays nothing until an example sale at month 24.
Three times in four the sale nets $17,110,800. That path is 12,709,565 + 4,401,235 discounted 24 months = $16,580,243. One time in four the sale nets $15,399,720, and that path is worth $15,075,429. The result is 0.75 × 16,580,243 + 0.25 × 15,075,429 = $16,204,039.
Sell the loan, $16,030,603
The example price is 85% of the balance, $15,563,500, at the end of six months, after $471,737 of interest. That path is worth $15,543,373.
Four times in ten there is no buyer. The bank keeps the six months of interest, and the property sale starts then. That branch is worth $16,761,448.79, more than the 85% sale, because the fallback is the property sale. The weighted result is still below starting the property sale now: 0.60 × 15,543,372.55 + 0.40 × 16,761,448.79 = $16,030,603.
Discounted payoff, $14,768,014
The example new loan funds $12,709,565 at the end of three months. Three months of interest are $237,762. That path is worth $12,744,880.
Half the time the lender does not fund. The bank keeps the three months of interest, and the property sale starts then. The result is 0.50 × 12,744,880 + 0.50 × 16,791,148 = $14,768,014.
New investor money
An investor who left the bank with the $12,709,565 note would pay $5,600,435 and would own equity of $4,930,435. The check is $670,000 larger than the equity, which is the gap between the $18,310,000 balance and the $17,640,000 value. On these figures the choice does not close, so it has no present value of its own.