Congress Approves Emergency SBA Lending Limit
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The transcript of the video follows below for further review.
One of the most powerful weapons that may be incorporated into certain loan documents on an SBA Loan Default Case where the SBA or Treasury Department is the primary creditor or assigned creditor (from the original lender of record (SBA 7(a) Loan) or from the Certified Development Corporation (SBA 504 Loan)) is a Confession of Judgment. A sample Confession of Judgment clause has been reproduced below:
IMPORTANT NOTICE
THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.
CONFESSION OF JUDGMENT. In the event of any default under this Instrument, including, but not limited to any payment under this Instrument not being paid when due, whether at maturity, by acceleration or otherwise, Debtor hereby irrevocably appoints and constitutes XX of XX County, and/or XX of XX County, any one of whom may act without the joinder of the other(s), as Debtor’s duly constituted attorney-in-fact to appear in the Clerk’s Office of the Circuit Court for XX, XX, or in any other court of competent jurisdiction, and to confess judgment pursuant to the provisions of Section XX of the Code of XX, as amended, against Debtor for all principal and interest and any other amounts due and payable under this Instrument as evidenced by an affidavit signed by an officer of the SBA or its agent or SBA setting forth the amount then due, together with attorney’s fees and collection fees as provided in this Instrument (to the extent permitted by law). This power of attorney is coupled with an interest and may not be terminated by Debtor and shall not be revoked or terminated by Debtor and shall not be revoked or terminated by Debtor’s death, disability or dissolution. If a copy of the Instrument, verified by affidavit, shall have been filed in the above clerk’s office, it will not be necessary to file the original as a warrant of attorney. Debtor releases all errors and waives all rights of appeal, stay of execution, and the benefit of all exemption laws now or hereafter in effect. Debtor shall, upon SBA or its agent’s or SBA’s request, name such additional or alternative person(s) designated by SBA or its agent’s or SBA as Debtor’s duly constituted attorney(s)-in-fact to confess judgment against the Debtor. No single exercise of the power to confess judgment shall be deemed to exhaust the power and no judgment against fewer then all the persons constituting the Debtor shall bar subsequent action or judgment against any one or more of such persons against whom judgment has not been obtained in this Instrument.
This sample Confession of Judgment clause, which may typically be included in a promissory note, personal or unconditional guarantee, stipulation, settlement agreement and/or other document obligating someone to make payments, states that if a default occurs, the defaulting party shall agree to the entry of a Judgment by a court of competent jurisdiction without notice or a trial. Once a judgment has been obtained, the creditor may immediately begin collection proceedings. A Confession of Judgment is a statutory creature and has to be specifically recognized by applicable state law where the federal or state court sits, which, in turn, is asked to consider said judgment proceedings. The power to confess a judgment must be clearly stated in a document that is signed by the debtor. A complaint to confess judgment, supported by an affidavit as to the amount due, must be filed in the county in which the note or obligation was executed, a county in which one or more of the defendants reside, or any county in which the debtor's real or personal property is located.
The process of obtaining a Judgment can move quickly. Often, a Judgment is entered on the same day that a Complaint for Confession of Judgment is filed. That Judgment may then be recorded in any county in which the debtor owns real estate. Because no written notice is required, a summons need not be served on the debtor. Given the extraordinary nature of this remedy, a creditor (such as the SBA or Treasury Department) might conclude that it should attempt to obtain a Judgment by Confession whenever possible. There are, however, compelling reasons why this may not be the case.
First, a court will carefully scrutinize every Confession of Judgment complaint. If the promissory note, unconditional or personal guaranty or other obligation which contains the clause does not specifically empower someone to act as the debtor's attorney and sign a court document agreeing to the entry of a judgment against the debtor, the judgment will not be granted.
Further, the document containing the Confession of Judgment clause must clearly explain the extent of the debtor's liability. Numerous courts have held that a guaranty that is all-encompassing—for example, one that refers to any and all debts, liabilities and obligations of every nature or form of the debtor—is so broad as to be void.
Additionally, select state laws provide that a debtor may file a motion to challenge a Judgment by Confession if the debtor can raise a valid affirmative defense to the judgment.
If, at the hearing on the motion, it appears that the debtor has a valid affirmative defense to all or a part of the creditor's claim, the court must set the matter for trial. Therefore, the summary procedure initially used by a creditor that once seemed quick and bulletproof has now resulted in a delay of at least several months, with the distinct possibility that the judgment will be vacated or overturned.
Rather than squandering time on a Confession of Judgment complaint, the SBA or Treasury Department might have been better off—and obtained a faster result—had it filed a conventional breach of contract or personal guarantee lawsuit against the SBA debtor.
If you are facing an SBA loan default or a Treasury/Bureau of Fiscal Service debt problem that has been referred to a Private Collection Agency, contact us today for a FREE initial consultation with an experienced attorney at 888-756-9969
We analyze your SBA loan problems and advise you on potential solutions such as an SBA offer in compromise for your SBA loan default.
Millions of Dollars in SBA Debts Resolved via Offer in Compromise and Negotiated Repayment Agreements without our Clients filing for Bankruptcy or Facing Home Foreclosure
Millions of Dollars in Treasury Debts Defended Against via AWG Hearings, Treasury Offset Program Resolution, Cross-servicing Disputes, Private Collection Agency Representation, Compromise Offers and Negotiated Repayment Agreements
Our Attorneys are Authorized by the Agency Practice Act to Represent Federal Debtors Nationwide before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.
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.
Clients executed personal and corporate guarantees for an SBA 7(a) loan from a Preferred Lender Provider (PLP). The borrower corporation defaulted on the loan exposing all collateral pledged by the Clients. The SBA subsequently acquired the loan balance from the PLP, including the right to collect against all guarantors. The SBA sent the Official Pre-Referral Notice to the guarantors giving them sixty (60) days to either pay the outstanding balance in full, negotiate a Repayment (Offer in Compromise (OIC) or Structured Workout (SW)), challenge their alleged guarantor liability or file a Request for Hearing (Appeals Petition) with the SBA Office of Hearings & Appeals.
Because the Clients were not financially eligible for an OIC, they opted for Structured Workout negotiations directly with the SBA before the debt was transferred to the Bureau of Fiscal Service, a division of the U.S. Department of Treasury for enforced collection.
The Firm was hired to negotiate a global Workout Agreement directly with the SBA to resolve the personal and corporate guarantees. After submitting the Structured Workout proposal, the assigned SBA Loan Specialist approved the requested terms in under ten (10) days without any lengthy back and forth negotiations.
The favorable terms of the Workout included an extended maturity at an affordable principal amount, along with a significantly reduced interest rate saving the Clients approximately $181,000 in administrative fees, penalties and interest (contract interest rate and Current Value of Funds Rate (CVFR)) as authorized by 31 U.S.C. § 3717(e) had the SBA loan been transferred to BFS.
The client personally guaranteed an SBA 7(a) loan for $150,000. His business revenue decreased significantly causing default and an accelerated balance of $143,000. The client received the SBA's Official 60-day notice with the debt scheduled for referral to the Treasury’s Bureau of Fiscal Service for aggressive collection in less than 26 days. We were hired to represent him, respond to the SBA's Official 60-day notice, and prevent enforced collection by the Treasury and the Department of Justice. We successfully negotiated a structured workout with an extended maturity date that included a reduction of the 14% interest rate and removal of substantial collection fees (30% of the loan balance), effectively saving the client over $242,000.
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