SBA Loan Default: You Pledged Your Personal Residence, Now What?

We provide individuals who are facing an SBA loan default with solutions. We will analyze your SBA loan problems and advise you on potential solutions such as an SBA offer in compromise.

Dealing with the idea that you might be facing an SBA loan default can be terrifying. The SBA attorneys in our office are skilled at helping clients understand all the facets of their situation. We will advise you as to the potential for an SBA offer in compromise. You should never face your SBA loan problems alone. It is important to retain the services of an attorney who can help you through this difficult time in your life. Please contact us for a consultation.

When it comes to SBA loans many situations dictate that a borrower pledge their personal residence as collateral. Unfortunately, once there is an SBA loan default, the house is now at risk. Pursuant to the SBA standard operating procedures, real property collateral must be liquidated in a manner that will maximize recovery on the loan in the shortest amount of time. This could mean a foreclosure just like if you stopped paying your mortgage.

Fortunately, the SBA procedures do offer some relief. When a personal residence is the borrower's only worthwhile asset and there is no other prospect for recovery (e.g., from income in excess of that needed to meet living expenses), the lien may be released for consideration. In such cases, a good faith effort must be made to obtain not only an amount equal to the Recoverable Value of the residence as consideration for release of the lien, but also an additional amount sufficient to compromise the borrower's remaining liability. This means you have the opportunity to buy out the lien and the SBA must negotiate in good faith

A compromise offer should be solicited from each borrower as soon as it becomes apparent that there will be a deficiency after the collateral has been liquidated, provided that:

a. Collection of the deficiency is not barred by a valid legal defense such as discharge in bankruptcy or the statute of limitations;

b. The borrower has not engaged in fraud, misrepresentation or other financial misconduct; and

c. The borrower does not appear to have the ability to pay the deficiency in full within a reasonable amount of time; or the borrower refuses to pay the deficiency in full, and the full amount cannot be recovered through cost-effective enforced collection proceedings within a reasonable amount of time.

This means, for instance, if you owe $200,000 on your loan, if your house is worth $100,000, if you have a $80,000 mortgage and the SBA is in second position you could free your house for $20,000 and negotiate the remaining $180,000 based on your ability to pay. Having your house held hostage is not a great position to be in, but there are alternative.

If you would like a consultation about your SBA loan default, contact us at 1-888-756-9969 or fill out the form below and a qualified SBA attorney will contact you.