Workout Payoff Calculator

Distressed borrowers sometimes negotiate a Discounted Payoff (DPO) with lender. This calculator models the savings and cash required.

Current loan balance

DPO % of balance

Lender net from foreclosure

DPO amount

$3,750,000

Borrower savings vs full payoff

$1,250,000

Lender benefit vs foreclosure

-$50,000

How the math works

DPO works when both sides win: borrower pays less than face, lender recovers more than foreclosure. The negotiation is around how to split the gap.

Leverage: lender time/legal cost (6-18 months + $100k+ legal) is real. Borrower with cash in hand and a documented foreclosure analysis can negotiate 60-80% DPO in distressed markets.

How to Use

Enter current loan balance.
Enter discount % offered.
Enter lender expected net from foreclosure.
Read DPO amount and comparison to foreclosure path.

Frequently Asked Questions

When does DPO make sense?

When foreclosure recovery < face value. Lender may accept 60-85% as lump sum to avoid legal cost and time. Common on CMBS workout, community bank workouts, and defaulted portfolios.

Where does borrower get cash?

New equity (capital partner), new senior debt refinancing DPO, asset sale, or mezzanine. DPO without fresh cash = mathematically impossible.

Tax implications?

Debt forgiveness = taxable income in most cases (cancellation of debt, COD). Insolvency exception may apply. Always consult tax advisor before accepting DPO.

When does a lender negotiate vs foreclose?

Lenders calculate their net recovery from foreclosure (asset value minus legal, time, and sale costs) and compare to any workout proposal. If your offer nets the lender more than foreclosure, and you present it with clear sources of capital, most lenders will engage. Bring a credible sponsor, documented sources, and a timeline — vague asks get declined. Build the relationship before distress, not after.