LPSA (Loan Purchase/Sale Agreement)

The loan purchase sale agreement (LPSA) is the binding contract between the buyer and seller of a mortgage note or portfolio of mortgage notes. Sometimes called a PSA (purchase sale agreement), this document defines every obligation, representation, and protection that governs the trade. Unlike a letter of intent, which is typically non-binding, the LPSA is enforceable — once both parties sign, the buyer is obligated to fund and the seller is obligated to deliver the assets along with the associated collateral files.

Key Provisions of the LPSA

A standard LPSA contains several critical sections that note investors must understand before signing:

Parties and Verification

The opening section identifies the seller and buyer by their legal entity names. The seller named on the LPSA must match the last entity in the chain of title for the loans being sold — specifically, the party holding the most recent assignment of mortgage and the most recent allonge or endorsement on the promissory note. A mismatch means you may be buying from a party that does not actually own the assets.

Closing Date and Cutoff Date

Everything that happens to the loan before the cutoff date is the seller's responsibility. Everything on or after the cutoff date belongs to the buyer. If a borrower pays off the loan the day after cutoff, those proceeds go to the buyer. If a senior lien forecloses the day after cutoff, that loss falls on the buyer.

Purchase Price and Loan Schedule

The purchase price is stated in the body of the LPSA and must match the detailed breakdown in Exhibit A — the mortgage loan schedule. This exhibit lists every loan in the trade with its property address, unpaid principal balance, purchase price, and loan number. Always verify that the totals in Exhibit A match the figures in the contract body.

Representations and Warranties

The seller's representations and warranties are the most important section of the entire agreement. These are legally binding statements about the condition and characteristics of the loans being sold:

If any representation proves false after closing, the buyer has contractual recourse — typically through the repurchase clause.

Repurchase and Cure Provisions

The repurchase clause is the buyer's primary post-closing protection. When the buyer discovers a breach of the seller's representations — such as a gap in the assignment chain or a missing original note — the standard process is:

1. Buyer sends a collateral exception report documenting the deficiencies
2. Seller has a cure period (typically 30–60 days) to correct the issue
3. If the seller cannot cure, the buyer can force a repurchase at the original purchase price

Without a repurchase clause, the buyer's only post-closing recourse is general contract law — which means litigation. A contractual repurchase mechanism is far more efficient and far less expensive to enforce.

Transfer and Servicing Obligations

The LPSA specifies a transfer date — the deadline by which the seller must:

• Execute and deliver new assignments and allonges transferring the loans to the buyer
• Ship the physical collateral files containing original loan documents
• Coordinate the servicing transfer to move the loans to the buyer's servicer through the boarding process

A 30-day transfer window is standard. The real bottleneck is often the loan servicer's internal scheduling — even when the seller initiates the transfer immediately after funding, the servicer may take additional time to process onboarding.

The Bill of Sale

Most LPSAs include an Exhibit B — the bill of sale. This is a receipt signed by the seller after receiving funds, formally acknowledging that payment was received and ownership has transferred. For first-time trades with a new seller, always obtain the executed bill of sale.

Negotiation Best Practices

Not every LPSA arrives with adequate buyer protections. Key areas to negotiate:

• Add missing representations — If the contract omits representations about complete collateral files or 1099-C status, request that language
• Define cure and repurchase timelines — A 30-day cure window followed by mandatory repurchase if unresolved is standard and fair
• Clarify the cutoff date — Ambiguity creates disputes about who receives payments during the transition period
• Specify collateral delivery requirements — Vague language like "relevant loan documents" leaves room for incomplete files
• Use escrow for new relationships — A third-party escrow agent holds both funds and documents, releasing each side only when both parties have delivered

When to Involve an Attorney

For a first note purchase, or any trade with a new seller, have an attorney review the LPSA before signing. The legal fee for a contract review is nominal compared to the cost of discovering post-closing that your contract offers no meaningful protection. An attorney familiar with secondary mortgage market transactions will identify missing representations, weak repurchase language, and unfavorable liability provisions. As you gain experience and trade with repeat sellers, you will become proficient at reviewing LPSAs yourself — but even experienced investors seek legal input for new sources, new states, or unusually large pools.