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[mothandrust]

I'm starting a new thread on this because the issue at hand applies not just to this particular loan, but to all loans that fall into a late status.

Prosper is saying that the "Late Charge" provision no longer applies to late payments if the loan is in charge-off status.

Dear XXXXXXX,

In review of your concern we have found that your Promissory note as it relates to note 29218-9 reads, in part, as follows:

4. Late Charge. If the full amount of any monthly payment is not made by the end of fifteen (15) calendar days after its due date, I will pay you a late charge of $1.06 (subject to rounding). I will pay this late charge promptly but only once on each late payment.

In looking at the payment history on this not we have found that there were 6 late charges due to you. Those were for the late payments in May, June, July, August, September and October of 2010. You were paid late charges on May 25th($1.06), June 28th($1.06), October 13th($3.19) and November 2nd($1.06). This note went into charge-off status on November 1st, 2010 and is no longer subject to the monthly late payment fees as the full balance is due and owing as of that date. Based on this information we find that all lenders have been compensated appropriately per the terms of the Promissory Note. Please feel free to reply to this Email if you have any additional questions.

I personally don't see why the Late Charges would be stopped by a charge-off event.

As a lender, I thought I was due 36 payments according to an amortization schedule, and if a payment is late, I would be paid a Late Charge to compensate me for my funds being tied up.

Prosper's interpretation means that if a borrower is 3+ months late it is better for her to let the loan lapse into charge-off to avoid all future Late Charges and the payments then apply to principal and interest.

Lobby, please.

[ira01]

I second the Lobby.

[Xenon481]

Third for Lobby.

[Xenon481]

None of this would be at issue if they had followed their agreements with the lenders and properly sold the loan instead of violating their part of the Lender Registration Agreement and putting things into this odd charged-off state where they charge us lenders all kinds of extra fees for every payment but not the borrowers.

[nonattender]

I'm starting a new thread on this because the issue at hand applies not just to this particular loan, but to all loans that fall into a late status.

Prosper is saying that the "Late Charge" provision no longer applies to late payments if the loan is in charge-off status.

Dear XXXXXXX,

In review of your concern we have found that your Promissory note as it relates to note 29218-9 reads, in part, as follows:

4. Late Charge. If the full amount of any monthly payment is not made by the end of fifteen (15) calendar days after its due date, I will pay you a late charge of $1.06 (subject to rounding). I will pay this late charge promptly but only once on each late payment.

In looking at the payment history on this not we have found that there were 6 late charges due to you. Those were for the late payments in May, June, July, August, September and October of 2010. You were paid late charges on May 25th($1.06), June 28th($1.06), October 13th($3.19) and November 2nd($1.06). This note went into charge-off status on November 1st, 2010 and is no longer subject to the monthly late payment fees as the full balance is due and owing as of that date. Based on this information we find that all lenders have been compensated appropriately per the terms of the Promissory Note. Please feel free to reply to this Email if you have any additional questions.

I personally don't see why the Late Charges would be stopped by a charge-off event.

As a lender, I thought I was due 36 payments according to an amortization schedule, and if a payment is late, I would be paid a Late Charge to compensate me for my funds being tied up.

Prosper's interpretation means that if a borrower is 3+ months late it is better for her to let the loan lapse into charge-off to avoid all future Late Charges and the payments then apply to principal and interest.

The point of legally "accelerating" a note in the event of default (and this is true for any type of loan, from credit cards to 30 year mortgages) is
so that the lender can then demand the full remaining principal balance (by whatever collection means warranted, including legal action) as due.

It's a bit nuanced, perhaps, but, from a legal perspective, you can't say "it's all due now" and at the same time "you owe me last month's fee".

Effectively, a lender throws out (trades off) any amortization schedule(s) for the right to declare the debt fully and immediately due to be repaid.

In time (and on Prosper) this event "occurs" at the moment when the note enters into "charge-off" status which is when the borrower "defaults".

Clear?  This may also help:  http://en.wikipedia.org/wiki/Acceleration_clause

[Xenon481]

Except that Prosper legal agreements at the time specifically did not allow for any such action and specifically stated a different action would occur. 

[xraider]

And, NA, Prosper has a long history of doing NOTHING with lates, so this debate is all about lipstick on a pig.  If Prosper accelerated and sued, that would have been great.  Oh yeah, they tried that with tremendous success. 

If Prosper had its crack collection team working on the lates, that would have been great.  Oh yeah, IF Prosper does that, it doesn't work.

If Prosper had sold the defaulted loans to junk debt buyers, that would have been great.  Hmmmm.  Even though Prosper's agreement with me requires them to do that, they haven't sold one single one of my defaults to a junk debt buyer.

In fact, Prosper did not get one single one of my defaults paid off.

And you wonder why there's this well of hatred.

[nonattender]

My interest (pardon the pun) in this loan (and in MothandRust's posts about it) arise from my participation in this particular loan as a lender.

So, my money was on the line, on this one, as well.  As Moth didn't accept my ethical/moral/philosophical explanations for why I didn't want
(even if the promissory note language from like 4 years ago didn't specifically cover acceleration - and, believe me, I was too lazy to look...)
any attempted collection of punitive "late fees" from this borrower - as I was both glad he was able to pay me back in full and, at same time,
knew full well that late fees are never charged after any loan is charged off, as that would simply be wrong (ethically/morally/philosophically
and legally) - I decided to reply to Moth's earlier post and to this one (also out of some sense of appreciation, as Moth had the foresight way
back when, to try an experiment to quantify the value of friends and family participating in a loan).  (This is one case only, but it's positive.)

As for whether Prosper was contractually bound to sell defaulted loans off, in 2008, during the lowest point of the recession, that's for other
people beside me to decide.  I think they made the right decision (and not just in this one case, where I got paid in full, plus interest, rather
than accepting the 2008-era junk debt buyer offers of - what - a penny on the dollar?).  I'm sure everyone has their own opinion on it - but,
this lender's take is that Prosper acted in my best interests by not selling off my defaulted notes for the nothing that the JDBs were offering.

Regarding collections performance, I've had the odd payment here and there on a number of my loans, but the plain fact (which I accepted)
happens to be that the people I chose to lend money to, during a recession, weren't that creditworthy to begin with and I doubt there's any
substantial hope that many of the high-rate/high-risk borrowers to whom I lent, then, have yet to worry about paying me... vs buying food.

Speaking of which, it's incredibly economically irrational of me to spend any more time talking about "collecting" like $3 in prorata late fees
on a loan which is like 5 years old, and which already, miraculously, paid off - in full - much to my surprise and amazement.  So - bye now!

[havastat]

Except that Prosper legal agreements at the time specifically did not allow for any such action and specifically stated a different action would occur.  

I certainly think Prosper could have done a lot better than it did in its collections, but I actually don't think what it did wasworse than if it had sold the loans to a debt buyer. When Prosper was selling notes to debt buyers, it was able to sell only a small percentage of its notes, for a penny or so on the dollar each.  So if you recovered anything more than a fraction of a percent of charged off notes under the charge-off-and-send-to-collections strategy, you didn't lose anything by Prosper's changing its strategy. And if you didn't suffer any damages, you weren't legally wronged.

I also don't see how there's any entitlement to late fees following a charge-off. The law says that when a lender demands payment in full, what's demanded becomes all the lender is permitted to recover and the lender can't come back and demand more. Your contract with  Prosper says you can only collect what Prosper recovers, so you have no entitlement to money it can't legally recover from the borrower.

You are only wronged if you suffered damages. No damages, no wrong.

All this, of course, is just a personal opinion, and not legal advice in any way.

[Xenon481]

Except that Prosper legal agreements at the time specifically did not allow for any such action and specifically stated a different action would occur. 

I think this is silly, and I'm going to say so. The law says that when a lender demands payment in full, what's demanded becomes all the lender is permitted to recover and the lender can't come back and demand more. Your contract with  Prosper says you can only collect what Prosper recovers, so you have no entitlement to money it can't legally recover from the borrower. In a contract one assumes that things are done as the law requires. You can't say that your contract with Prosper requires it to behave illegally because the contract doesn't specifically say that it is supposed to behave legally. And you can't say you have an entitlement to be reimbursed because your understanding of the law was wrong when you signed the contract. It your responsibility to understand what you were signing including the underlying law, and if you could have hired a lawyer to explain things to you if you wanted to.

You are only wronged if you suffered damages. When Prosper was selling notes to debt buyers, it was ablle to sell only a small percentage of its notes, for a penny or so on the dollar each.  If you recovered anything more than a fraction of a percent of charged off notes under the charge-off-and-send-to-collections strategy, you didn't lose anything by Prosper's changing its strategy.

All this, of course, is just a personal opinion, and not legal advice in any way.

The Lenders' contract with Prosper at the time did not allow Prosper to accelerate the payment schedule. Prosper had no right to demand payment in full.

[havastat]

But of course once Prosper sold the notes to a debt buyer, it wouldn't have been able to come back after doing so and add late fees either. So selling loans to a debt buyer wouldn't have made you any better off in this respect than going the charge-off and collections route.

[Xenon481]

But of course once Prosper sold the notes to a debt buyer, it wouldn't have been able to come back after doing so and add late fees either. So selling loans to a debt buyer wouldn't have made you any better off in this respect.

You trust companies that refuse to uphold their side of contracts with you?

[havastat]

You didn't say "I don't trust Prosper because it..." You said "Prosper had no right to..."

Very different things.

[ira01]

Except that Prosper legal agreements at the time specifically did not allow for any such action and specifically stated a different action would occur.  

I certainly think Prosper could have done a lot better than it did in its collections, but I actually don't think what it did was worse than if it had sold the loans to a debt buyer. When Prosper was selling notes to debt buyers, it was able to sell only a small percentage of its notes, for a penny or so on the dollar each.

I don't know if you are mistaken or if you are lying, but either way, this is complete bullshit.  When Prosper was selling Late-4s to JDBs (as it was obligated to do under the terms of the then-applicable LRA), it sold nearly EVERY such loan (except for ones in BK), and for FAR more than "a penny or so on the dollar each."  I actually saved a spreadsheet showing the results of each and every JDB sale Prosper conducted, and data about its aborted Spring 2008 sale (attached to this post).  As you can see:

Prosper conducted 4 debt sales -- in 12/06 (51 loans), 5/07 (294 loans), 8/07 (309 loans), and 12/07 (701 loans).  That is 1,355 loans sold to JDBs by Prosper.  Here were the sale prices:

12/06:  Homeowners yielded a whopping 27%-30% of outstanding balance.  Non-homeowners yielded 15-18% for credit D and above, and 3-3.7% for E and HR.

5/07:  Homeowners yielded 16-19%, while non-homeowners yielded 2.4-3.3%. 

8/07:  AA and A yielded a whopping 23%.  B-D yielded 13.3%, and E&HR yielded 8.1%. 

12/07:  Homeowners yielded 12.5%.  Non-homeowners yielded 9.6% for AA-A, 9.1% for B-D, 7.3% for E&HR, and even NC yielded 4.8%.

As you can see, not a single category in any of the 4 debt sales yielded "a penny or so on the dollar each."  And for many of the categories, the sale prices were very substantial.  For example, homeowners yielded excellent prices in the three sales where that was a pricing factor (especially the 1st sale, with a yield of 27-30%).  And in 3 of the sales, even non-homeowners in all but the lower credit grades did well -- non-homeowner AA-D loans in those 3 sales yielded at least 9.1% (and as high as 18%).  The worst return was non-homeowners in the May 2007 sale, which yielded 2.4-3.3%. 

Now let's turn to the aborted Spring 2008 sale. 

There was $6.6 million of Late-4s that Prosper was obligated to sell to JDBs for us.  Prosper admitted that it had been offered at least a third as much as the December 2007 prices.  That means lenders with homeowner deadbeats (more than half by dollar volume of the loans at issue were homeowners) would have gotten 4.2% of their money back.  And even the non-homeowners would have brought in 3.2% for AA-A, 3.03% for B-D, 2.43% for E-HR, and 1.6% for NC (less than 0.3% of the dollars at issue were NC).  Prosper had no legal right to decide for lenders that those prices were too low.  A decision that turned out to be terrible for many lenders, myself included (I haven't received a penny in "post-chargeoff collections" from any of my defaults, IIRC). 

Moreover, the real reason why Prosper wouldn't go forward with the Spring 2008 debt sale (and very possibly the reason for the low prices), was that the JDB's attached certain "conditions" to their offer, which Prosper unilaterally deemed "unacceptable."  Prosper never told us what those allegedly "unacceptable conditions" were, but lenders believed that a likely scenario was that the JDBs insisted on a right to force Prosper to repurchase loans that turned out to have been procured through identity fraud.  The reason that condition would have been highly "unacceptable" to Prosper (though manna from heaven for lenders), is that would, of course, have triggered Prosper's so-called "100% identity-theft guarantee," under which Prosper would have had to repurchase all those loans from the lenders at 100% of their principal balance.  Since that could have exposed Prosper to millions of dollars of repurchase obligations, one can certainly imagine why Prosper might have decided to never again hold another debt sale -- too much risk of letting expensive skeletons out of the closet. 

So if you recovered anything more than a fraction of a percent of charged off notes under the charge-off-and-send-to-collections strategy, you didn't lose anything by Prosper's changing its strategy.

As explained above, completely wrong.  And I and many other lenders most certainly were damaged by Prosper's improper "changing its strategy" (otherwise known as breach of contract and breach of fiduciary duty). 

I also don't see how there's any entitlement to late fees following a charge-off. The law says that when a lender demands payment in full, what's demanded becomes all the lender is permitted to recover and the lender can't come back and demand more. Your contract with  Prosper says you can only collect what Prosper recovers, so you have no entitlement to money it can't legally recover from the borrower.

And as also explained by previous posters, Prosper had no legal right to do any of that.  It simply made up the whole notion of "charge-offs."  Prosper was legally obligated to sell late-4 notes to JDBs for the lenders' benefit.  It unilaterally decided not to. 

All this, of course, is just a personal opinion, and not legal advice in any way.

Good thing.   

[xraider]

NA, you, like I, have ONE paid charge-off, which was paid only because the BORROWER had the integrity to pay us.  Prosper didn't do anything to get these loans paid.