Purchase and Sale Agreement (PSA)

Key Provisions of a PSA

A well-drafted purchase and sale agreement addresses the following areas:

• Purchase price and payment terms. The total price, payment method, and funding timeline.
• Representations and warranties. Statements by the seller about the portfolio's characteristics, including documentation completeness, account validity, and compliance history.
• Putback rights. The buyer's right to return accounts that do not meet specified criteria within a defined review period.
• Assignment and delivery. The mechanics of transferring ownership, including the bill of sale, account files, and supporting documentation.
• Indemnification. Provisions allocating liability for breaches of representations, pre-closing claims, and other specified risks.
• Confidentiality. Obligations regarding the treatment of borrower data and transaction details.

Negotiation Dynamics

PSA negotiations reflect the relative bargaining power of the parties and the specific characteristics of the portfolio. Institutional sellers (banks, credit unions) often use standardized PSA templates that favor the seller, while buyers negotiate for additional protections such as broader putback rights, longer review periods, and stronger representations about documentation quality.

Key negotiation points include the scope of the seller's representations (how broad or narrow), the putback period and criteria, the indemnification cap and survival period, and any post-closing cooperation obligations (such as the seller providing additional documentation or responding to borrower inquiries during a transition period).

PSA and Legal Enforcement

The PSA's provisions directly affect the buyer's ability to enforce collection on the acquired accounts. Clear assignment language, thorough representations about account validity, and well-defined documentation delivery obligations strengthen the buyer's legal position. Conversely, vague or limited provisions can create gaps that complicate collection efforts and court proceedings. Buyers should have legal counsel review the PSA carefully before closing to ensure the document adequately protects their interests.