SBA Loan Default - Can I Modify My Note?
We help people who need to avoid an SBA loan default by advising them about the SBA offer in compromise and about other various SBA loan problems.
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.
Client personally guaranteed SBA 7(a) loan balance of over $150,000. Business failed and eventually shut down. SBA then pursued client for the balance. We intervened and was able to present an SBA OIC that was accepted for $30,000.
Our firm successfully resolved an SBA 7(a) loan default in the amount of $140,000 on behalf of a husband-and-wife guarantor pair. The business had closed following a prolonged decline in revenue, leaving the borrowers personally liable for the remaining balance.
After conducting a comprehensive financial analysis and preparing a detailed SBA Offer in Compromise (SBA OIC) package, we negotiated directly with the SBA and the lender to achieve a settlement for $70,000 — just 50% of the outstanding balance. This settlement released the borrowers from further personal liability and allowed them to move forward without the threat of enforced collection.
Clients obtained an SBA 7(a) loan for $324,000 to buy a small business and its facility. The business and real estate had an appraisal value of $318,000 at the time of purchase. The business ultimately failed but the participating lender abandoned the business equipment and real estate collateral even though it had valid security liens. As a result, the lender recouped nearly nothing from the pledged collateral, leaving the business owners liable for the deficiency balance. The SBA paid the lender the 7(a) guaranty money and was assigned ownership of the debt, including the right to collect. However, the clients never received the SBA Official 60-Day Notice and were denied the opportunity to negotiate an Offer in Compromise (OIC) or a Workout directly with the SBA before being transferred to Treasury's Bureau of Fiscal Service, which added an additional $80,000 in collection fees. Treasury garnished and offset the clients' wages, federal salary and social security benefits. When the clients tried to negotiate with Treasury by themselves, they were offered an unaffordable repayment plan which would have caused severe financial hardship. Clients subsequently hired the Firm to litigate an Appeals Petition before the SBA Office & Hearings Appeals (OHA) challenging the legal enforceability and amount of the debt. The Firm successfully negotiated a term OIC that was approved by the SBA Office of General Counsel, saving the clients approximately $205,000.
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