Friendly foreclosure under Article 9: which records move to the lender's newco?

What makes a foreclosure friendly

A friendly foreclosure is an Article 9 disposition of collateral in which the borrower cooperates instead of contesting: it acknowledges the default, agrees the timetable and helps move customers, staff and systems to a newco the lender forms or to a buyer the lender selects. It usually avoids a bankruptcy filing and is common where one lender holds a lien on substantially all assets and nobody expects a better result from a court process.

Article 9 of the Uniform Commercial Code, as each state enacts it, governs how a secured party may dispose of collateral after default, with requirements on notice and on the commercial reasonableness of the disposition. Enacted versions vary, so the governing state's text and counsel's reading control. Related routes include strict foreclosure under UCC 9-620, where the lender accepts collateral in satisfaction of debt, and a bankruptcy sale, compared in Article 9 sale vs section 363 sale.

Which records move to the newco

Records move only when the collateral description and the disposition documents include them. Blanket security agreements often reach books, records and general intangibles, but the bill of sale or foreclosure sale agreement still has to say what passes, and software or cloud accounts may need the vendor's consent or a fresh subscription.

Whether data counts as collateral under a blanket lien in the first place is covered in is company data collateral under a blanket lien.

Which privacy promises travel with customer data

In practice the borrower's promises follow the data, even though the owner changes. FTC staff have said it may be unfair or deceptive for a company to adopt more permissive data practices, such as sharing data with third parties or using it for AI training, and tell consumers only through a surreptitious, retroactive amendment to its terms or privacy policy. That is staff guidance rather than a rule, but a newco that inherits customer data and quietly rewrites the policy is the pattern it describes.

State privacy law adds a layer. California's CCPA statute requires notice at collection of the categories of personal information, the purposes, whether it is sold or shared and how long it is kept, and requires a written agreement limiting use when a business sells or shares personal information. Counsel should check which state laws reach the borrower's customers and how each treats a transfer to a successor.

For a records license the practical rule is simpler: operational business records such as tickets, engineering history and internal documents are the target; personal information is redacted or de-identified under rules agreed before any work begins; and datasets made up mainly of consumer personal data are not a fit.

Why the cooperation window is the moment for a fit check

The weeks between a failed forbearance and the foreclosure sale are when the borrower's people still hold admin credentials, remember which systems hold history and have a reason to help. After the transfer, many of them leave, subscriptions lapse and that knowledge goes with them.

Before the sale, the borrower's board still runs the company, but the lender's consent is needed in practice because the records are collateral. After the sale, the newco's board decides. The guide to private credit lenders taking the keys covers the parallel route where lenders take the equity rather than the assets.

How the rules apply in common situations

Before spending time on any of this, a quick screen settles whether the company fits: a US business with 50+ full-time employees at peak (contractors excluded), years of documented operating history, records across many systems that can still be exported, material the company created itself, no prior AI-training license and an authorized sponsor. The company fit checker runs a preliminary, non-binding version, and who qualifies has the full baseline.

Rewards for lenders and deal teams

Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company, and rewards become payable only after the buyer pays and SourceX receives its fee. Rewards are never assured, and none is taken out of what the borrower or newco receives. Lending institutions should check their own policies on fees connected to borrowers before a deal team member registers.

This is general information, not legal, tax or financial advice. Confirm with your own counsel, tax adviser or professional body before acting.

Next step

If a borrower in your book is heading toward a consensual handover, add records to the cooperation agreement now and run the fit check while the team is still in place. Lenders and advisers who want to make the introduction can register as a partner, or the borrower or newco can submit itself through sourcex.si/apply.