As delinquencies rise across commercial and residential real estate, a growing number of banks and private lenders are choosing to sell their defaulted loans rather than navigate the costly and time-consuming foreclosure process. Gelt Financial, a national private lender and distressed debt buyer, reports that it is now purchasing several defaulted loans every week, according to founder and president H. Jack Miller.
Miller explained that sellers typically fall into two categories: those unequipped to handle distressed loans and the associated legal processes, and those that need to redeploy capital to continue lending. "The economy was so good for so long. A lot of people just didn’t deal with it. They didn’t have to deal with it," Miller said. Now, with delinquencies climbing, lenders that once managed an occasional default are facing them far more frequently. There is also a human element. "It’s not fun to foreclose on someone. It’s not fun to be adversarial," he added.
The financial rationale for selling is compelling. Miller walked through a hypothetical $500,000 first mortgage at 12% with a borrower paying $5,000 monthly. When payments stop, the lender loses that income while still owing its own funding costs—a $10,000 monthly swing. Expenses quickly mount: force-placed insurance at roughly $500 per month, attorney fees of $3,000 to $4,000 monthly, and a staff position to manage the workout that can cost around $150,000 annually. Over 12 to 18 months, these costs can overwhelm a lender whose core business is origination. "So some lenders just say, look, I don’t want to deal with it. It’s not my business. I’m moving on," Miller said.
For borrowers, a loan sale can be unsettling, but Miller insists it is usually good news. The loan terms remain unchanged. "The new lender can’t change anything. We just have to live with it," he said. What changes is the relationship. When Gelt acquires a loan, it contacts the borrower, introduces itself as the new owner, and seeks a resolution. "Forget what happened in the past. Let’s talk the future," is Miller’s typical message. If a borrower is several months behind, the first question is whether they can resume monthly payments. This approach offers a second chance for borrowers to re-engage, and those who could not reach a deal with their original lender often find common ground with the new owner. "Sometimes you just need a fresh face," Miller noted.
Buying non-performing debt from banks and non-bank lenders has been part of Gelt’s business since its early years. Looking ahead, Miller expects the volume of troubled loans for sale to increase, with distress appearing across both commercial and residential sectors. "It’s across the board," he said. For lenders weighing whether to hold or sell, Miller’s example provides a practical starting point: tally the lost income, insurance, legal fees, and staff time, knowing those costs may persist for a year or more.
