Congress Approves Emergency SBA Lending Limit
We will analyze your SBA loan problems and advise you on potential solutions such as an SBA offer in compromise for your SBA loan default.
Contact Our SBA Attorneys for Nationwide Representation of SBA and Treasury Debt Problems
Book a Consultation CallCross-Servicing is a consolidated government-wide program operated by Treasury's Bureau of Fiscal Service (BFS) that fulfills the requirement of The Debt Collection Improvement Act of 1996 (DCIA) to collect delinquent, non-tax debt on behalf of federal agencies. As required by the DCIA, an agency must refer any eligible debt more than 180 days delinquent to Fiscal Service for cross-servicing.
As part of the Cross-Servicing program, BFS must take appropriate action to service, collect, compromise, or suspend or terminate collection action on the debt. BFS encourages federal creditor agencies (agencies to whom debt is owed) to transfer all eligible delinquent debts for debt collection services before they are delinquent 180 days. Agencies are strongly encouraged to use all available debt collection tools.
The DATA Act changed the notice requirement for federal agencies to notify the Treasury Secretary of past due, nontax debts for the purposes of administrative offset from 180 days to 120 days.
In order to transfer a federal agency debt (such as a defaulted SBA loan) to BFS, the parties must execute and comply with the applicable Annual Debt Certification Agreement between the federal agencies.
The Cross-Servicing Dispute presents an avenue to release your debt from the clutches of the Treasury Department’s blackhole and back to the SBA or originating federal agency. In most cases, it is necessary to return the debt to the SBA or other originating federal agency given the Treasury’s extreme reluctance to compromise debts referred to it.
The Cross-Servicing Dispute must present facts, evidence and legal arguments establishing that your debt should have never been transferred to the Treasury. If successful, this strategy accomplishes two (2) goals: 1. It can eliminate the 28% to 30% “collection fee” that Treasury adds to your debt; and 2. It can transfer the debt back to the SBA or other originating agency, which potentially means a more realistic offer in compromise.
In order for the SBA or other federal agency to transfer your debt to the Department of Treasury, an employee of the SBA must certify, in writing, that the debt being transferred is valid, legally enforceable, and that there are no legal bars to collection. Creditor agencies, such as the SBA, must also certify that they have complied with all prerequisites to a particular collection action under the laws, regulations or policies applicable to the agency unless the creditor agency has requested, and the Department of Treasury has agreed, to do so on the creditor agency's behalf.
Thus, it is important to obtain a copy of the applicable Annual Debt Certification Agreement, as the provisions contained in this Agreement, often form the basis upon which to file or submit a formal petition for a Cross-Servicing Dispute. Generally, you would want to investigate whether you can challenge the cross-servicing of the debt from the federal creditor agency to the Treasury Department’s BFS. Some of these challenges could be based on arguments and evidence that the debt is not valid or legally enforceable, that your due process rights were violated and/or that the administrative fees, interest and/or penalties are inequitable.
You can view a Cross-Servicing Dispute Form by clicking: CSD Form
The Cross-Servicing Dispute is not as simple as asking Treasury to return the debt. We do not recommend that you simply try disputing your debt by yourself. Instead, it would be better if you hire us to investigate the grounds for a possible cross-servicing dispute, and where applicable, formally prepare a Petition for Cross-Servicing Dispute on your behalf and process your case through the federal agency’s administrative appeals channels. You need an experienced attorney to gather and analyze documents, evidence and apply legal arguments. Our aggressive attorneys know what evidence and facts to look for and how to apply legal theories to support your Cross-Servicing Dispute.
Contact us today for a Case Evaluation.
Client personally guaranteed an SBA 7(a) loan for $100,000 from the lender. The SBA loan went into early default in 2006 less than 12 months from disbursement. The SBA paid the 7(a) guaranty monies to the lender and subsequently acquired the deficiency balance of about $96,000, including the right to collect against the guarantor. However, the SBA sent the Official 60-Day Due Process Notice to the Client's defunct business address instead of his personal residence, which he never received. As a result, the debt was transferred to Treasury's Bureau of Fiscal Service where substantial collection fees were assessed, including accrued interest per the promissory note. Treasury eventually referred the debt to a Private Collection Agency (PCA) - Pioneer Credit Recovery, Inc. Pioneer sent a demand letter claiming a debt balance of almost $310,000 - a shocking 223% increase from the original loan amount assigned to the SBA. Client's social security disability benefits were seized through the Treasury Offset Program (TOP). Client hired the Firm to represent him as the debt continued to snowball despite seizure of his social security benefits and federal tax refunds as the involuntary payments were first applied to Treasury's collection fees, then to accrued interest with minimal allocation to the SBA principal balance.
We initially submitted a Cross-Servicing Dispute (CSD) challenging the referral of the debt to Treasury based on the defective notice sent to the defunct business address. Despite overwhelming evidence proving a violation of the Client's Due Process rights, the SBA still rejected the CSD. As a result, an Appeals Petition was filed with the SBA Office of Hearings & Appeals (OHA) Court challenging the SBA decision and its certification the debt was legally enforceable in the amount claimed. After several months of litigation before the SBA OHA Court, our Firm Attorney successfully negotiated an Offer in Compromise (OIC) Term Workout with the SBA Supervising Trial Attorney for $82,000 spread over a term of 74 months at a significantly reduced interest rate saving the Client an estimated $241,000 in Treasury collection fees, accrued interest (contract interest rate and Current Value of Funds Rate (CVFR)), and the PCA contingency fee.
Our firm successfully assisted a client in closing an SBA Disaster Loan tied to a COVID-19 Economic Injury Disaster Loan (EIDL). The borrower obtained an EIDL loan of $153,800, but due to the prolonged economic impact of the COVID-19 pandemic, the business was unable to recover and ultimately closed.
As part of the business closure review and audit, we worked closely with the SBA to negotiate a resolution. The borrower was required to pay only $1,625 to release the remaining collateral, effectively closing the matter without further financial liability for the owner/officer.
This case highlights the importance of strategic negotiations when dealing with SBA settlements, particularly for businesses that have shut down due to unforeseen economic challenges. If you or your business are struggling with SBA loan debt, we focus on SBA Offer in Compromise (SBA OIC) solutions to help settle outstanding obligations efficiently.
Client’s small business obtained an SBA 7(a) loan for $750,000. She and her husband signed personal guarantees exposing all of their non-exempt income and assets. With just 18 months left on the maturity date and payment on the remaining balance, the Great Recession of 2008 hit, which ultimately caused the business to fail and default on the loan terms. The 7(a) lender accelerated and sent a demand for full payment of the remaining loan balance. The SBA lender’s note allowed for a default interest rate of about 7% per year. In response to the lender's aggressive collection action, Client's husband filed for Chapter 7 bankruptcy in an attempt to protect against their personal assets. However, his bankruptcy discharge did not relieve the Client's personal guarantee liability for the SBA debt. The SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection against the Client to the SBA. The Client then received the SBA Official 60-Day Notice. After conducting a Case Evaluation with her, she then hired the Firm to respond and negotiate on her behalf with just 34 days left before the impending referral to Treasury. The Client wanted to dispute the SBA’s alleged debt balance as stated in the 60-Day Notice by claiming the 7(a) lender failed to liquidate business collateral in a commercially reasonable manner - which if done properly - proceeds would have paid back the entire debt balance. However, due to time constraints, waivers contained in the SBA loan instruments, including the fact the Client was not able to inspect the SBA's records for investigation purposes before the remaining deadline, Client agreed to submit a Structured Workout for the alleged balance in response to the Official 60-Day Notice as she was not eligible for an Offer in Compromise (OIC) because of equity in non-exempt income and assets. After back and forth negotiations, the SBA Loan Specialist approved the Workout proposal, reducing the Client's purported liability by nearly $142,142.27 in accrued interest, and statutory collection fees. Without the Firm's intervention and subsequent approval of the Workout proposal, the Client's debt amount (with accrued interest, Treasury's statutory collection fee and Treasury's interest based on the Current Value of Funds Rate (CVFR) would have been nearly $291,030.
.jpg)
