[A longer version of this post appeared on the Verified Lenders forum on November 8, 2007. Since Prosper.com has promised that a debt sale will be finalized by the end of this month, this seemed like an appropriate time to make it available to a larger audience. For those of you who are wondering, I have received no reply to or acknowledgment of my offer.]
MNH Report #4Over the past year or so, various lenders have expressed an interest in buying defaulted Prosper loans, but various Prosper employees (most recently Doug Fuller, as channelled through Shira) have said that Prosper would not sell defaulted loans to Prosper lenders.
However, to the best of my knowledge, all of these conversations have occurred at a theoretical level, and both the lenders who wanted to buy the defaulted loans and the Prosper employees who said they wouldn't sell might have just been blowing smoke. There has, again to the best of my knowledge, never been a formal, legally-binding, offer from a Prosper lender to purchase a defaulted loan, so Prosper management has never had to confront this issue directly.
Until now.
Yesterday, I mailed the following letter to Doug Fuller, with a copy to Ed Giedgowd, both by certified mail, return receipt requested:
November 7, 2007
Doug Fuller
Vice President of Operations
Prosper Marketplace Inc.
111 Sutter St, 22nd floor
San Francisco CA 94104
CERTIFIED MAIL – RETURN RECEIPT REQUESTED
Dear Dr. Fuller:
It has come to my attention that Loan No. **** (Borrower: ****) is more than 120 days past due, and is therefore eligible for sale to a debt buyer, as provided in Section 6.f. of the Lender Registration Agreement.
Accordingly, I hereby offer to purchase all Notes associated with Loan No. **** (Borrower: ****), together with the associated Servicing Rights (as that term is defined in the Lender Registration Agreement) and all causes of action against the borrower arising from this loan (including, but not limited to, claims based on contract and fraud theories), for the amount of **** percent (****%) of the outstanding principal amount due at the time of purchase.
As servicing agent for the lenders on this loan, Prosper Marketplace, Inc., (PMI) has a fiduciary duty to maximize recovery of the lenders’ investment through the loan sale process. After reviewing the results of past sales of comparable loans, I expect that this offer will be significantly more advantageous for lenders than the offers which PMI will receive from other debt buyers. If so, it would be a violation of PMI’s fiduciary duty to the lenders to reject this offer.
The borrower on Loan No. **** is located in ****, and I reside in ****. Based on my review of the relevant state statutes pertaining to collection of debts, it appears that no license is required to collect debts which have been purchased by the collector. (In addition, debt collectors who are attempting to collect fewer than two debts on behalf of another person are specifically exempted from licensing requirements.) Accordingly, I believe that I am fully qualified to purchase this debt under the terms of the Lender Registration Agreement.
As part of the purchase agreement, I will guarantee that all collection activity will be conducted in compliance with federal and state law, including the Fair Debt Collection Practices Act and the Fair Credit Reporting Act.
I further certify that this is a bona fide offer to purchase a delinquent debt for the purpose of collecting that debt, to the extent permitted by law, and that I have had no prior communications whatsoever with the borrower, or any representative of the borrower, with respect to the purchase of this debt.
As you know, delinquent debts are a rapidly depreciating asset, and unreasonable delay on the part of PMI in acceptance of this offer may reduce the value of the Notes, Servicing Rights, and causes of action. Accordingly, if this offer is not accepted by December 31, 2007, I reserve the right to withdraw or modify it with 30 days notice to PMI. Because a withdrawal or modification would almost certainly reduce the amount recovered on behalf of the lenders, unreasonable delay, like rejection of this offer in favor of an inferior one, may constitute a breach of PMI’s fiduciary duty to the lenders.
Please feel free to contact me if you need any additional information, or to make arrangements for payment and assignment of the Notes, Servicing Rights, and causes of action.
Sincerely,
**** ****
cc: Ed Giedgowd
I have been unable to identify any legal or regulatory issue which would prevent Prosper from selling defaulted loans to Prosper lenders (though it is possible that there may be some state-by-state licensing or regulatory issues based on the residence of the borrower, lender, or both). And while I have my own theories as to why Prosper would prefer not to sell defaulted loans to Prosper lenders, I don't believe their preferences can be allowed to outweigh their fiduciary duty to obtain the highest possible sale price.
My offer was roughly 4 to 5 times what I expect the lenders would get in a bulk debt sale. I wanted the difference to be dramatic enough to get Prosper's attention. Obviously, each offer to purchase a defaulted loan raises the stakes for Prosper if it chooses to violate its fiduciary duty by rejecting the offers without legal justification, and increases the likelihood that lenders will be allowed to participate as debt buyers.
[The prior discussion thread -- accessible only to lenders with $500 or more in loans -- can be found at:
http://www.prospers.org/forum/travs_doityourself_secondary_market_panaderia-t3811.0.htmlPrevious MNH Reports, along with links to the corresponding Prospers.org threads, can be found on my blog:
http://blog.traveler505.com.]
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Topic: Trav's Do-It-Yourself Secondary Market & Panaderia (Read 27965 times)