# Liquidations, Buyouts & Auctions

When a loan defaults (passes due date without repayment), the liquidation process depends on the number of tranches.

#### Single Tranche Defaults

**Simple Process**: The lender can claim the collateral directly through the GONDI dApp.

* Requires a transaction to claim (not automatic)
* Lender becomes the new owner of the NFT(s)
* No additional steps or waiting periods

#### Multi-Tranche Defaults

Loans with multiple tranches follow a two-step liquidation process:

**Step 1: Largest Lien Buyout (48 Hours)**

**Who gets buyout rights**: The lender with the largest principal amount

* If principal amounts are tied, the most senior tranche (ST = 0) gets priority
* Only one lender gets buyout rights

**Buyout process**:

* 48-hour window starting immediately after default
* Buyout lender must pay all other tranches their full outstanding debt (principal + accrued interest up to default date)
* If exercised, buyout lender can claim the collateral immediately
* If not exercised, proceeds to auction

**Step 2: Liquidation Auction (72 Hours)**

**When it starts**: Automatically after the 48-hour buyout period expires (if no buyout occurred)

**Auction mechanics**:

* 72-hour English auction
* No starting bid minimum
* Each bid must be 5% higher than the previous bid
* Anyone can participate (including original lenders)
* Bids placed with <10 minutes remaining extend auction by 10 minutes
* Auction contract holds each bidder's funds until outbid or auction ends

#### Distribution of Auction Proceeds

**Waterfall Priority**: Senior tranches paid first, then junior tranches

**Scenario 1 - Insufficient Proceeds**: If proceeds < total outstanding debt:

* Senior tranches receive priority for principal + accrued interest
* Junior tranches receive remaining funds (may be zero)

**Scenario 2 - Sufficient Proceeds**: If proceeds ≥ total outstanding debt:

* Each lender receives full amount owed (principal + accrued interest)
* Any surplus distributed pro-rata based on outstanding debt amounts

#### Important Notes

* **No borrower action required**: Liquidation process is automatic after default
* **No grace period**: Liquidation begins immediately when loan passes due date
* **Lender participation**: All lenders can bid in auctions regardless of tranche position
* **Interest calculations**: All accrued interest calculated up to default date, not liquidation completion


---

# Agent Instructions: Querying This Documentation

If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question.

Perform an HTTP GET request on the current page URL with the `ask` query parameter:

```
GET https://docs.gondi.xyz/gondi-v3/liquidations-buyouts-and-auctions.md?ask=<question>
```

The question should be specific, self-contained, and written in natural language.
The response will contain a direct answer to the question and relevant excerpts and sources from the documentation.

Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.