Litigation & Collection Weapons in California That Can Be Used By Lenders, CDCs And SBA Involving An SBA Loan Default
The transcript of the video follows below for further review.
A major concern facing 7(a) Lenders, Certified Development Corporations (CDCs) or the SBA is whether the SBA guarantor possesses any reachable assets to satisfy a money judgment and whether the assets will be available if a judgment is secured through litigation.
The writ of attachment is a powerful tool to secure property of the SBA guarantor at the beginning of a litigation case to satisfy a money judgment in a breach of guarantee action.
What is an attachment?
Attachment is a provisional remedy, obtained before an actual court judgment is rendered and even before trial, intended to secure assets to satisfy a future court judgment.
Pre-judgment attachments are generally available in civil actions involving claims for money. However, there are four restrictions on the kinds of actions in which attachment is authorized. Nakasone v. Randall (citations omitted).
First, the claim must be based on an expressed or implied contract. C.C.P. § 483.010(a).
Second, the total amount at issue must be a fixed or readily ascertainable amount of $500 or more, which may include costs and fees. C.C.P. § 483.010(a).
Third, the claim must not be secured or, if it is secured, the security must have no value or a value that is less than the amount of the claim. C.C.P. § 483.010(b).
Fourth, if the action is against a person, an attachment may be issued only on a debt which arises out of a trade, business or profession. C.C.P. § 483.010(c); 492.010(a).
The burden is on the 7(a) Lender, CDC or the SBA to prove that it has a right to attach the SBA guarantor’s assets according to the statutory requirements listed above and that the claim is probably valid. See C.C.P. § 484.090.
Validity of attachments
The need for the strict statutory requirements is due to the constitutional attack on the validity of pre-trial attachment orders. In 1969, the U.S. Supreme Court held that attachment orders, pretrial wage garnishments in particular, are a violation of constitutional due process when property is taken or secured without prior notice and a hearing, except in extraordinary circumstances. Sniadach v. Family Finance Corp. of Bay View (citations omitted).
In 1971, the California Supreme Court decided in a similar fashion by holding that pretrial attachments of bank account, without due process of law, are an unconstitutional deprivation of property. Randone v. Appellate Department (citations omitted). Since then, California has amended existing pre-trial attachment statutes to protect an individual’s rights to property while also protecting the individual’s rights to secure property to satisfy an eventual judgment.
What can be attached?
Property is defined by the California attachment statutes to include both real and personal property or any interest in either. C.C.P. § 481.195. Personal property may be tangible or intangible, including money, chattel paper, documents of title, instruments, securities and general intangibles, as well as equipment, inventory and accounts receivable. C.C.P. §§ 481.020-481.225.
The most common asset that the SBA, 7(a) Lender or CDC would seek to attach is the SBA guarantor’s personal residence (especially, if the home it was not directly pledged as collateral for the SBA loan during the initial loan application process).
In California, the list of attachable property owned by an individual is defined by statute. C.C.P. § 487.010. California also provides a list of property exempt from attachment, which includes any property that is exempt from enforcement of a money judgment, property necessary to support debtor and his or her family, earnings, and all property not defined by statute to be attachable. C.C.P. § 487.020. A debtor may claim that his or her property is exempt by statute and a granting or denial of an exemption claim is subject to appeal. C.C.P. § 703.600.
When the SBA debtor is an entity, such as a corporation, partnership, or association, all property held by the entity is available to attach by the SBA, 7(a) Lender or CDC. See C.C.P. § 487.010.
Procedure to attach property
In order to attach the SBA debtor’s property, the SBA, 7(a) Lender or CDC must obtain a right-to-attach order and a writ of attachment, both applied for in a single form. See C.C.P. § 484.010. A right-to-attach order is provided if the claim can support the issuance of a writ of attachment and a writ of attachment will not be issued unless the court determines that the property to be attached is not exempt. C.C.P. §§ 487.010-484.110. After issuance of the right-to-attach order, the creditor can obtain writs for attachment of other additional property, as long as that property is not exempt. C.C.P. §§ 487.310-484.370.
Two methods are available to obtain a right-to-attach order:
Noticed hearing procedure
The most common method to obtain a right-to-attach order is by a noticed hearing method. The notice of hearing and application for a writ of attachment must be served on the SBA debtor at least 16 days before the date set for the hearing and the SBA debtor’s notice of opposition must be filed and served at least five days before the hearing. C.C.P. §§ 484.020-484.060.
Ex parte procedure
The second method is by an ex parte application for a right-to-attach order or for a temporary protective order.
If the SBA, 7(a) Lender or CDC shows that it will suffer great or irreparable injury by the delay of the issuance of the writ of attachment until after a noticed hearing, a writ may be issued based on an ex parte application. C.C.P. § 485.010(a). In ex parte procedures, the creditor is only required to give a one-court-day notice prior to the presentation of an ex parte application, substantially shorter than the 16-day notice for the noticed hearing procedure. C.R.C. 3.1203(a).
Great or irreparable injury can be shown if there is a danger that the property to be attached may be concealed, substantially impaired in value, or made unavailable to the levy of an attachment. C.C.P. § 485.010(b)(1).
Great or irreparable injury can also be shown if the SBA debtor is insolvent to the extent that he or she is past due on his or her debts. CCP § 485.010(b)(2).
In either method to obtain a right-to-attach order, the SBA, 7(a) Lender or CDC must prove by affidavits the “probable validity” of their claim. C.C.P. § 483.030.
Before the SBA, 7(a) Lender or CDC is granted a right-to-attach order, it must file an undertaking or a bond in a sufficient amount that would protect the SBA debtor should damages arise from a wrongful attachment. C.C.P. § 489.210. Right-to-attach orders require a bond and, if the bond is not filed when the writ of attachment is granted, the writ is invalid. Vershbow v. Reiner (citations omitted).
The undertaking must be in the minimum amount of $10,000, which may be increased by the court if the SBA debtor can show that the damages for wrongful attachment would exceed this amount. C.C.P. § 489.220. Also, when the SBA, 7(a) Lender or CDC serves the notice of attachment to the SBA debtor, it must also disclose the SBA debtor’s right to object to the undertaking. C.C.P. § 489.230.
An SBA debtor may take advantage of an undertaking by filing one to obtain the release of an attached property. Upon the issuance of a writ of attachment, a debtor may move the court to substitute a bond for the property that had been attached. C.C.P. § 489.310(a).
Temporary protective orders
The SBA, 7(a) Lender or CDC which had filed an application for a right-to-attach order and a writ of attachment through the noticed hearing procedure may also simultaneously apply for a temporary protective order, which places an immediate lien on the property described on the order for 40 days, at which point the order expires or merges into a subsequent attachment order. C.C.P. §§ 486.050-486.100.
If the SBA, 7(a) Lender or CDC pursues the ex parte procedure, the court has discretion to deny the ex parte request and convert the procedure to a noticed hearing procedure and issue a temporary protective order. C.C.P. §§ 486.010; 486.030. Similar to attachment procedures, the SBA, 7(a) Lender or CDC would have to file affidavits in support of the court granting a temporary protective order on the SBA debtor’s property.
For collection of SBA debts, there is no more effective tool to secure payment than a writ of attachment. In an appropriate case, attachment can literally save the SBA debt from becoming uncollectible by requiring prompt payment before an SBA debtor goes out of business or files for bankruptcy.
If you defaulted on an SBA loan and believe that your personal residence or personal property may be a target for litigation in state superior or federal district court in California by the SBA, 7(a) Lender or CDC through a Writ of Attachment or Temporary Protective Order, you should speak to one of the Firm Attorneys by calling 1-888-756-9969 or arrange for a free Case Evaluation by entering your contact information.
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