CALIFORNIA STATE COURT LITIGATION
There are times where your defaulted SBA loan has been assigned to Private Litigation Counsel (PLC) for litigation.
Typically, PLC is retained by the SBA lender of record or the CDC in order to file a lawsuit against you for breach of the personal guarantee you executed. The objective of the lawsuit would be to secure a judgment against you – which can be renewed in increments of up to 20 years. Litigation is generally pursued by the SBA lender of record or the CDC as an obligation required by the SBA in order to liquidate all pledged collateral associated with the SBA loan.
The first sign that litigation may be imminent is if you receive a written notice of default, an election to accelerate the entire loan balance due and a demand for payment within a certain number of days. This letter is typically sent to the small business and each of the personal guarantors on the SBA loan. If your small business or you (as a personal guarantor) is a California resident subject to the jurisdiction of the state courts in California, and you received this written notice or have been served with summons and complaint in connection with a defaulted SBA loan, you should seriously consider hiring legal counsel to help defend your interests or negotiate an alternative workout.
There are several pre-judgment remedies available to the SBA lender of record or CDC that typically accompany the summons and complaint. They may include a writ of attachment, a writ of possession and/or an appointment of a receiver, etc. It would be unwise to ignore any of these state court associated pleadings or attempt to represent yourself without qualified legal counsel in the state of California.
CALIFORNIA FEDERAL DISTRICT COURT LITIGATION
There are times where your defaulted SBA loan has been referred to the U.S. Department of Justice (DOJ) for litigation. Referrals to DOJ can occur if after several years of administrative collection action through Treasury’s BFS prove to be unsuccessful in recouping significant amounts on the outstanding SBA debt.
If you, as a personal guarantor, reside in the state of California and in the judicial districts of San Diego County, Orange County or Los Angeles County, and have received a notice of default or demand letter from the DOJ’s Financial Litigation Unit, you seriously need to contact qualified legal counsel to represent you. If settlement negotiations fail, you can expect that your SBA debt case will be transferred to the appropriate U.S. Attorney’s Office within your residential jurisdiction.
If litigation ensues, you can expect to be served with a summons and complaint for breach of contract (i.e., the SBA Unconditional Guarantee) for the entire amount due, including interest, administrative fees, costs and expenses. The U.S. Attorney’s Office would most likely file its action against you in federal court – typically, in the federal judicial district where you reside and have assets or real estate property. Several of the same type of pre-judgment remedies available for California state court litigants are available for Federal court litigants as well.
You can generally be expected to also receive a writ of attachment, writ of possession or an appointment of a receiver (if your small business that was the borrower on the original SBA note is still operational).
Again, it would be unwise to ignore any of these federal court associated pleadings or attempt to represent yourself without qualified legal counsel in the state of California.
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