The February 12, 2007 version of the Lender Agreement (which governs my relationship with Prosper), conatins the following paragraph 6(f), which deals with the default sales:
f. Notes that become over 120 days past due are written off as uncollectible, and sold to a debt buyer authorized and willing to purchase consumer loans. Proceeds, if any, from the sale, less expenses of sale, will be paid to you.
The current version (dated November 8, 2007) reads as follows:
f. Except in the case of borrower bankruptcy, Notes that become over 120 days past due are charged off and offered for sale to an unaffiliated debt buyer authorized and willing to purchase consumer loans. You authorize Prosper to offer for sale and sell your Notes that become over 120 days past due to a debt buyer in accordance with this Section. Because debt purchasers buy many past-due Notes at once, Notes that are in default might not be offered for sale at the point at which they are exactly 120 days past due, but may remain unsold for some period after they are 120 days past due. Collection efforts will continue until the Note is actually sold to a debt purchaser. Proceeds, if any, from the sale of your Notes, less expenses of sale, will be paid to you. No portion of the proceeds of a defaulted Note sale will be paid to any group leader. PROSPER DOES NOT GUARANTEE THAT A NOTE WILL BE SOLD AT A DEBT SALE, OR THAT YOU WILL RECEIVE ANY PROCEEDS FROM A DEBT SALE OF YOUR NOTE.
Certain aspects of this have previously been discussed, but I don't believe the portion I bolded has been discussed. What in the world is this supposed to mean? Read literally, it means that all you sucker GL's out there won't receive any money from debt sales, even on defaulted loans in your lending portfolios that are not in your group. Or did they mean to say that if a GL bid on one of their group member's loans, that you won't receive any of the JDB proceeds if that loan defaults? Or did they mean to say that you won't receive anything by virtue of being a GL, but if you are a lender on the loan, you still get what you would if you weren't a GL? Or did they mean something else entirely? Who knows with Prosper, but they really need to find a new lawyer to draft their legal agreements -- they are horrible.