The SBA guaranty
The federal government’s guaranty is considered the most important collateral for an SBA loan. This is especially true for any SBA 7(a) loan. The Third Party Lender’s ability to collect on an SBA guaranty, however, is not absolute.
The SBA has established written procedures for liquidating loans. They are detailed, complex and also very cumbersome. For example, SBA’s regulations dictate that third party lenders obtain the SBA’s written approval before they take certain liquidation actions, and that the third party lender notify the SBA in advance of its intention to pursue certain other liquidation and/or collection actions.
In addition, SBA regulations also require third party lenders to take certain actions that they ordinarily would not take on their own conventional loan portfolios, particularly where one of the SBA loan obligors files for bankruptcy or dies. Finally, even if a third party lender makes all of the right decisions and selects the appropriate course of action, it may not document its action sufficiently in accordance with the SBA’s requirements.
As such, when it comes time for the third party lenders to enforce their rights under an SBA loan but makes a mistake or fails to act in strict compliance with the applicable SBA regulations, the SBA may limit its obligation to reimburse the third party lender for liquidation costs, may reduce the amount of the SBA guaranty, or may even refuse to honor the guaranty outright.
Moreover, because the guaranty purchase is the last step in the SBA loan liquidation process, third party lenders typically do not discover a costly mistake until it is too late to correct the problem. In too many cases, a lender’s errors do not come to light until the SBA denies a guaranty purchase request or penalizes the lender with a reduction in its guarantee.
When certain irregularities associated with an SBA guaranty purchase are discovered, it may provide federal SBA debtors additional ammunition to contest the validity or enforceability of subject SBA debt. The argument is that the SBA should not have honored or purchased the guaranty presented by the third party lender insofar as the third party lender did not strictly comply with specific written SBA regulations. Had the SBA knew or should have known of the third party lender’s non-compliance, the SBA guaranty would have either been denied or, at the very least reduced. This fact, alone, had it been discovered, would then call into question the validity and/or enforceability of the SBA debt as it relates to the federal SBA debtor.
Therefore, it is extremely imperative for SBA loan obligors or guarantors to consider, at the outset, whether the federal SBA debt is even enforceable against them – notwithstanding the existence of a signed promissory note or personal guarantee – as those initial documents preceded the transactions involving the SBA guaranty and assignment of the collection rights regarding the SBA loan from the original third party lender to the SBA or Treasury.
LIABILITY INVESTIGATION
Protect Law Group’s SBA Attorneys and United States Treasury Dept. Practitioners offer SBA debtors the rarest of commodities: highly skilled federal administrative law practitioners who are well-versed in SBA’s regulations.
Our SBA & DOT Practitioners look at all angles of defending, appealing and settling SBA debts. They recognize that it is important to uncover certain irregularities in an attempt to negotiate an SBA OIC or DOT compromise based on the applicable findings. To do so, they try to look for certain guaranty purchase issues and violations of applicable SBA regulations that may have occurred but went unnoticed by the SBA during the liquidation process. If discovered, then the next strategic endeavor is to call into question the actual validity or enforceability of the SBA debt as against the SBA debtors or obligors.
If you are struggling with circumstances that involve SBA loan default or DOT collection action, you deserve professional help! Our attorneys know how to settle SBA OIC and DOT compromise cases. If you contact us, we can help you settle SBA debt once and for all. After you schedule an appointment, you confer with a dedicated SBA OIC and DOT Practitioner who helps you through your administrative legal battle. After your claim is resolved, you never again have to worry about your SBA loan default or DOT collection problem haunting you. Our team of lawyers has assisted many clients through the years. Now it is your turn! You truly can settle SBA debt for good!
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 personally guaranteed SBA 504 loan balance of $750,000. Clients also pledged the business’s equipment/inventory and their home as additional collateral. Clients had agreed to a voluntary sale of their home to pay down the balance. We intervened and rejected the proposed home sale. Instead, we negotiated an acceptable term repayment agreement and release of lien on the home.
Our firm successfully negotiated an SBA offer in compromise (SBA OIC), settling a $974,535.93 SBA loan balance for just $18,000. The offerors, personal guarantors on an SBA 7(a) loan, originally obtained financing to purchase a commercial building in Lancaster, California.
The borrower filed for bankruptcy, and the third-party lender (TPL) foreclosed on the property. Despite the loan default, the SBA pursued the offerors for repayment. Given their limited income, lack of significant assets, and approaching retirement, we presented a strong case demonstrating their financial hardship.
Through strategic negotiations, we secured a favorable SBA settlement, reducing the nearly $1 million debt to a fraction of the amount owed. This outcome allowed the offerors to resolve their liability without prolonged financial strain.
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.
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