Holding bad debt is not a strategy; it is a liability. When you divest delinquent accounts, you convert a depreciating asset into immediate operational capital. This allows your team to focus on origination, not recovery.

Strategic divestiture transfers the compliance risk off your balance sheet. By selling to a vetted institutional buyer, you convert non-performing assets (NPLs) into cash today, rather than theoretical collections tomorrow.

Before going to market, you must execute a Pre-Sale Scrub to identify risks. This protects your valuation and prevents "put-backs" after the closing.

I. The Media Audit

• Original Contracts: Confirm availability of the signed credit application (or digital signature). Without the contract, the asset value is zero.
• Statement History: verify a seamless timeline between the last payment date and the charge-off date. Gaps create legal vulnerabilities.

II. The Data Scrub

• SCRA (Military) Review: Screen for active duty status to ensure federal compliance.
• Bankruptcy & Deceased: These accounts are "Zombie Debt." They must be removed or sold separately to specialized buyers.
• Statute of Limitations (SOL): Verify the legal enforceability of the paper based on state-level laws.

A broken Chain of Title destroys portfolio value. You must be able to trace ownership from the Originator to your institution without a gap.

I. The Lineage

• Unbroken Chain: If you bought the paper, you need every Bill of Sale leading up to you.
• Merger Certificates: If your bank changed names, include the legal certificate bridging the old entity to the new one.

II. The Bill of Sale

• Exhibit A: The closing document must explicitly reference the attached data tape (Exhibit A) to legally transfer the specific accounts.

A Forward Flow contract guarantees that a buyer will purchase your charge-offs every month at a set price. This creates Predictable Revenue and operational certainty.

I. Structural Advantage

• Locked Criteria: We define the "Credit Box" upfront. The buyer must buy everything that fits the box, preventing "cherry picking."
• Price Stability: You insulate your institution from market volatility by locking in pricing for 6-12 months.

Lenders who dump raw files get "Dumpster Pricing." Lenders who stratify their data get "Institutional Pricing."

I. Segmentation

• Fresh vs. Aged: Never mix fresh charge-offs with 3-year-old paper. It dilutes the value. Sell them as separate tranches.
• Geo-Sorting: Group accounts by state to attract regional buyers who pay premiums for specific jurisdictions.