We are proud to announce that, after many months of hard work and as a result of our recovery team’s and CRO’s unwavering dedication, all investors of the loan stages listed below, have received their money back today.
#3392 Bridge loan – 1. & 2. stage (Spain) – Funded – 17.09.2020
Even thought the loan defaulted, we were able to recover it with 25,3 months. Bring back €1,75M repaid principal and on average actual return is 3,51%.
As we receive many questions about defaulted loans and feel that investors don’t always understand the recovery process and the amount of work that goes into it, we thought we’d take the opportunity to share the process with you. Hopefully, this will give you some peace of mind should you have other defaults in your portfolio currently or in the future, and help you to trust that we have the team, the plan, and the strategy in place to protect all your investments.
The journey from funded to defaulted to recovered
Amount recovered: €1 759 464
Funding date: 17.09.2020
Default date: 22.06.2021 but contracts were only officially terminated on 30.09.2021 as negotiations were ongoing with interested parties to complete the construction. Unfortunately, this plan fell through.
Repaid date: 20.07.2023
Recovery Time: 25,3 months
Principal repayment amount: 100%
Actual return: 3,51%
The challenges faced
- The borrower started the development and construction works but took on too many projects at the same time and ran out of cash and equity.
- The borrower presented us with potential investors, also including a construction company, that could buy out the project or invest in it and finish construction, but this solution didn’t work out. As we saw that there were no other options to sell or restructure the loan, EG then defaulted the loan and proceeded with enforcement in the summer of 2021.
- By August 2021 we had chosen our legal partner for the enforcement process (Garrigues law firm) and in September we started the process. We terminated the loan agreements and our legal partner begun to prepare the documents for the enforcement claim to the Spanish court.
- By the end of October 2021, our legal partner had submitted the enforcement claim against the borrower to the Spanish court. Our legal partner estimated the timeline for receiving the court decision to be 3-6 months.
- We received a positive court decision on 11.02.2022, which allowed us to approach the bailiff and initiate the property auction. However, despite the positive news, we had to consider the legal peculiarities of the Spanish enforcement and auction procedures. This meant that if we had initiated the auction without an actual potential buyer, the auction price could have been uncontrollably lowered, resulting in a capital loss for investors. Additionally, if we wanted to protect our investors, we would have had to participate ourselves and pay a substantial state fee to take over the property from the auction process. To avoid such a situation, it is customary in the local practice to find potential buyers before the auction or to sell the court-recognized claim directly to a buyer.
- As soon as we received the positive court decision we initiated an active sales process of the claim using all our contacts in the Spanish, Baltic and Nordic markets. These activities resulted in around 10 contacts and 50% of whom we initiated due diligence and negotiation processes.
- These negotiations lasted seven months and were conducted on a weekly basis with several interested buyers dropping off in the last phases of negotiations as, in the meantime, the war in Ukraine started and also the general macroeconomic situation worsened.
- Despite this situation, negotiations continued and at the end of 2022 one buyer, with whom we were already in the notary phase, failed to pay the final purchase price of the claim due to AML reasons.
- Despite the challenges mentioned above, due to active sales and negotiation activities by our CRO during the last 1,5 years, in July this year, we agreed with the borrower to sell the property voluntarily and exit the loan project successfully.
Going above and beyond for our investors
Our team exceeded the efforts seen as a normal market practice by selling the claim in different channels throughout Europe and controlling the legal enforcement and auction process in a way that avoided a capital loss to our investors and ensured a legally secure transaction for the buyer.
Also, our legal team and our legal partner in Spain ensured a professional transaction as the sale of a defaulted loan’s property that has been enforced is much more complicated than selling plain real estate property.
EG’s actions resulted in no capital losses on recovery and achieved a sales price higher than the market average down-value on mid-construction developments being sold at auction in Spain, where often they are sold at huge discounts.
Our work will continue
The Estateguru team works every single day to actively manage all defaults and recoveries in our loan portfolio through to a resolution that brings satisfactory results to our investors. Our aim is to avoid capital losses at all costs, even when this requires the kind of extensive involvement that many other lenders would not be willing to undertake. Rather than write off losses, which would be the easy and straightforward way out, we remain committed to doing everything it takes to recover, at a minimum, the full principal for our investors.
We are confident that more recoveries are coming in the near future, and we approach every default with the same dedication, no matter the size of the loan or the obstacles faced during the process.
We hope that you have found this information useful and that it has inspired you to reinvest your earnings in one of the great loans we currently have available.
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We’d like to thank you for your patience and continued faith in our platform. It is your trust that inspires us to do the very best we can.
