Discounted Payoff

A discounted payoff sounds a little confusing. How could you pay off the remaining balance of a loan at a discount? In other words, you’d be resolving the loan, but without having to pay the rest of the oustanding loan balance.

First, it’s not too good to be true; it does happen. The kicker? Usually, this is a last restort situation, and typically only happens on debt involving commercial real estate. In the real estate biz, sometimes the market can get a bit carried away and create inflated prices. When the bubble of inflated real estate prices pops, and the price of the land drops, that can leave land owners with a loan that's bigger than the land is now worth. Rut-roh.

Lenders will only consider the possibility of a discounted payoff if there's literally no way for them to get money from the borrower, and if it's their best way to minimize losses.

It's still no fun for the borrower either...they still have to pay off the rest of the property, up to what it's now worth, which could be big bucks. Nobody likes their bubble popped.