SBA Debt Collection
SBA debt collection litigation includes judicial and nonjudicial foreclosures, bankruptcy and lawsuits to collect on the 504 Note or Guarantees.
Businesses face enormous financial risks throughout their entire existence, but they are never more vulnerable than during their first few years or immediately following a large expansion. During these periods of change and adjustment the owners must also deal with higher costs. Much of this expense is due to the business loans, often from the Small Business Administration (SBA), that enabled them to open or expand. When everything goes as planned the books will balance and the loans are paid. Unfortunately, this is not always how it works in the business world. This leads to companies falling behind in their bills and not making their loan payments as promised.
When a loan is not paid on time there is a traditional method of collection that the lender will use. An SBA demand letter is usually sent after several missed payments and when other contact methods have failed. This letter will demand repayment of the balance of the loan because it is now considered to be in default. An SBA loan default is a serious issue because the business property and any personal belongings used as collateral are at risk. If payment is not received or an additional agreement not made once the loan is in default an SBA loan foreclosure is possible. This is the point when the SBA may seek to seize personal and business assets and levy bank accounts. The SBA may also initiate a Tax Offset Program to collect any tax refunds the borrower is due and use them to reduce the debt.
Business owners have options to prevent the loss of their property. An SBA Offer in Compromise is a plan agreed to by the borrower and the SBA where the lender accepts a payoff for the loan that is less than the full balance owed. It is a good solution for businesses that have closed and are liquidating. By using the funds received from their sold property they can potentially protect their personal property and savings from being seized. Whether this method or some other form of negotiation is used it is very important to seek the assistance of an attorney familiar with SBA loans. Small business loans offer many people the opportunity to fund their dreams, but when a business fails it is imperative that the borrower work to find a mutually acceptable compromise.
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 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.
Clients personally guaranteed SBA 7(a) loan balance of over $300,000. Clients also pledged their homes as additional collateral. SBA OIC accepted $87,000 with the full lien release against the home.
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