Navigating SBA Loan Challenges: COVID-EIDL Charge-Offs, Trump 2.0 Policy Shifts, and the Future
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The Treasury Department (DOT), the Small Business Administration (SBA) and other federal agencies, such as the USDA, the VA or even the SEC, can track people who have defaulted on federal obligations, including direct or guaranteed federal loans, incurred a federal lien or judgment or have had a claim paid by one of many government agencies.
If you're sporting this badge of dishonor, you already may have missed out on a home loan. Authorized employees of participating federal agencies access this list of delinquent federal borrowers for the purpose of prescreening loan applicants for credit worthiness.
SBA loan applicants, FHA, VA, USDA applicants beware
Approved private lenders acting on the government's behalf can also access CAIVRS to screen applicants for federally-guaranteed loans. If you're applying for an SBA loan, FHA loan, VA loan or USDA loan, this means you.
You won't have access to CAIVRS yourself, but your mortgage lender should check CAIVRS first thing when you apply for a mortgage. The last thing you want is to get loan approval or preapproval, only to get bad news within days of closing that your name was found on the CAIVRS list.
How you got on the list, and what to do about it
Here are four ways you may have made this alleged deadbeat list, and what to do if you're on it when you apply for a home loan:
Once you miss payments on your student loan, the maturity dates of your promissory notes are accelerated, which makes payment in full due immediately. You are no longer eligible for any type of deferment or forbearance. Additional consequences can include garnishment of your wages, offset of your federal and/or state income tax refunds (and any other payments you have coming), and lost eligibility for other federal loans such as FHA or VA mortgages.
Government-backed student loans are practically impossible to discharge. You can't unload them even through bankruptcy filing. Additionally, there is no statute of limitations for enforceability of defaulted student loans.
What to do: To restore your eligibility for government-guaranteed mortgages, try the following:
If your lender was unable to recover your entire loan balance in a foreclosure sale, HUD would have been obligated to pay a claim for the amount of the deficiency, and you would have lost your eligibility in the process.
Your eligibility is not restored until three years after HUD paid the claim, which could be much later than the foreclosure date.
What to do: Wait it out. According to HUD's website, you will remain listed on CAIVRS for 38 months after the claim is paid, but you will be eligible for a mortgage after 36 months.
CAIVRS contains data reported by the following agencies:
Notice that the Internal Revenue Service (IRS) is not on this list; it doesn't report to CAIVRS. However, IRS liens are reported to credit bureaus, and IRS installment agreement payments must be disclosed to your lender and included in your debt-to-income ratios.
What to do: Most FHA lenders will want to see a satisfactory payment history (usually 12 months) before approving you for a mortgage, so get current well before you shop for a home. If there is a tax lien, the IRS must agree to subordinate it to the new mortgage.
Of course, a final possibility is that you're not supposed to be on CAIVRS at all. Perhaps you've satisfied a creditor, or perhaps more than 36 months have gone by since a claim was paid. (You may even have had a claim paid but fall under one of HUD's exceptions that allow you to get an FHA loan despite being on CAIVRS.)
What to do: If you turn up on CAIVRS, your lender is given the name of the agency reporting the default, the case number of the defaulted debt, the type of delinquency (default, claim, foreclosure, lien or judgment), and a telephone number to call for further information or assistance.
Your loan officer can pass this information on to you, and you should contact the reporting agency and clear the error before your scheduled mortgage closing. It's your responsibility to contact the agency yourself and resolve the issue. Your lender cannot delete CAIVRS information, even if you have proof that you are listed in error.
If you're applying for an FHA loan, the FHA also can't help you get off CAIVRS directly. It can neither remove correct CAIVRS information nor alter or delete CAIVRS information reported from other federal agencies.
Dealing with the idea that you might be facing SBA loan default can be terrifying. The SBA attorneys in our office are skilled at helping clients understand all of the facets of their situations. If, for instance, you need to know what an SBA offer in compromise is, you can simply ask your lawyer. You should never face 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. We urge you to read about the services that we have available and to contact us if you believe that we can be of assistance to you right now.
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.
Clients obtained an SBA 7(a) loan for their small business in the amount of $298,000. They pledged their primary residence and personal guarantees as direct collateral for the loan. The business failed, the lender was paid the 7(a) guaranty money and the debt was assigned to the SBA. Clients received the Official 60-Day Notice giving them a couple of options to resolve the debt balance directly with the SBA before referral to Treasury's Bureau of Fiscal Service. The risk of referral to Treasury would add nearly $95,000 to the SBA principal loan balance. With the default interest rate at 7.5%, the amount of money to pay toward interest was projected at $198,600. Clients hired the Firm with only 4 days left to respond to the 60-Day due process notice. Because the clients were not eligible for an Offer in Compromise (OIC) due to the significant equity in their home and the SBA lien encumbering it, the Firm Attorneys proposed a Structured Workout to resolve the SBA debt. After back and forth negotiations, the SBA Loan Specialist assigned to the case approved the Workout terms which prevented potential foreclosure of their home, but also saved the clients approximately $294,000 over the agreed-upon Workout term with a waiver of all contractual and statutory administrative fees, collection costs, penalties, and interest.
Client’s small business obtained an SBA 7(a) loan for $150,000. He and his wife signed personal guarantees and pledged their home as collateral. The SBA loan went into default, the term or maturity date was accelerated and demand for payment of the entire amount claimed was made. The SBA lender’s note gave it the right to adjust the default interest rate from 7.25% to 18% per annum. The business filed for Chapter 11 bankruptcy but was dismissed after 3 years due to its inability to continue with payments under the plan. Clients wanted to file for Chapter 7 bankruptcy, which would have been a mistake as their home had significant equity to repay the SBA loan balance in full as the Trustee would likely seize and sell the home to repay the secured and unsecured creditors. However, the SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection to the SBA. Clients then received the SBA Official 60-Day Notice and hired the Firm to respond to it and negotiate on their behalf. Clients disputed the SBA’s alleged balance of $148,000, as several payments made to the SBA lender during the Chapter 11 reorganization were not accounted for. To challenge the SBA’s claimed debt balance, the Firm Attorneys initiated expedited discovery to obtain government records. SBA records disclosed the true amount owed was about $97,000. Moreover, because the Clients’ home had significant equity, they were not eligible for an Offer in Compromise or an immediate Release of Lien for Consideration, despite being incorrectly advised by non-attorney consulting companies that they were. Instead, our Firm Attorneys recommended a Workout of $97,000 spread over a lengthy term and a waiver of the applicable interest rate making the monthly payment affordable. After back and forth negotiations, SBA approved the Workout proposal, thereby saving the home from imminent foreclosure and reducing the Clients' liability by nearly $81,000 in incorrect principal balance, accrued interest, and statutory collection fees.
Client received the SBA's Official 60-Day Notice for a loan that was obtained by her small business in 2001. The SBA loan went into default in 2004 but after hearing nothing from the SBA lender or the SBA for 20 years, out of the blue, she received the SBA's collection due process notice which provided her with only one of four options: (1) repay the entire accelerated balance immediately; (2) negotiate a repayment arrangement; (3) challenge the legal enforceability of the debt with evidence; or (4) request an OHA hearing before a U.S. Administrative Law Judge.
Client hired the Firm to represent her with only 13 days left before the expiration deadline to respond to the SBA's Official 60-Day Notice. The Firm attorneys immediately researched the SBA's Official loan database to obtain information regarding the 7(a) loan. Thereafter, the Firm attorneys conducted legal research and asserted certain affirmative defenses challenging the legal enforceability of the debt. A written response was timely filed to the 60-Day Notice with the SBA subsequently agreeing with the client's affirmative defenses and legal arguments. As a result, the SBA rendered a decision immediately terminating collection of the debt against the client's alleged personal guarantee liability saving her $50,000.
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