The borrower defaulted once the interest reserve ran out; Peer Street then turned around and lend the defaulting borrower AN ADDITIONAL $500k to cover 9 months interest!.  

when the OP said the bank is WILLING to take 91k to me that means or infers a default situation and a discount..

The default rate is only 1% per month which is 12% annual.I assume there are more pages to that agreement

Mass default rates.

Bob doesn't realize his payment didn't clear until he gets his statement, he is in default, Joe calls the note due just to get at Bob and knowing Bob can't pay it off.

The perceived benefit to the investor is they either get the inflated price, or if the deal goes "bad" and the tenant defaults they get to keep all the deposit money and rent and all that.

What's more, these contracts were never recorded before or during the foreclosure process, and the homeowner was actually in default on the first mortgage when they entered into these agreements.

So she's just behind in her mortgage and probably has a notice of default or whatever the procedure is in Florida.Your ability to get a loan for the home has nothing to do with her payment history on the home.  

However, lenders often add their own requirements, and many interpret the “intent to occupy” as a longer-term commitment, sometimes defaulting to the 1-year rule as a safeguard. 

So that helped.I personally wanted to be more conservative as I pretty much reach “the number” that I needed (note that what “I needed” is different from what “I wanted” or what I was expecting by default.)