Article about SBA Liquidation Standard Operating Procotols, SBA liquidation procedures, grounds for appealing violations of SBA SOPs to the SBA Office of Hearings and Appeals
Book a Consultation CallSBA SOP 50 51 3 is a very important standard operating procedure which needs to be understood by SBA debtors looking to resolve their SBA guaranteed debt. We will be reviewing and commenting on this SBA SOP through a series of blog articles to give debtors knowledge as knowledge is power.
SBA Liquidation
A. Responsibility and Authority
When an SBA Loan is classified in liquidation status, one of the three SBA Loan Centers listed below is responsible for either (1) liquidating the loan; or (2) overseeing the liquidation conducted by a 7(a) Lender or CDC.
SBA Commercial Loan Service Center East (Little Rock, AR)
B. Performance Standards
In general, SBA personnel must ensure that all SBA Loans are liquidated in a prompt, cost-effective, prudent and commercially reasonable manner consistent with applicable Loan Program Requirements.
C. Loan Actions
1. Rule of Two Approval
Loan Actions must be approved pursuant to the Rule of Two whenever required by this SOP.
2. Documentation Requirements
a. Loan Action Record
Loan Actions requiring approval pursuant to the Rule of Two must be documented by a Loan Action Record.
b. Contents of Loan Action Record
A Loan Action Record should include the following:
(1) The Borrower's name and loan number;
(2) A reasonable description of the Loan Action;
(3) The justification for the Loan Action including an analysis of any supporting documentation; and
(4) The recommendation and signature of the Recommending Official and the approval and signature of the Approving Official if the Loan Action required approval pursuant to the Rule of Two.
c. Format
A memo, email, letter, SBA Form 327 or other document may serve as a Loan Action Record provided that it meets the requirements of Subparagraph C.2.b. above.
d. Recordkeeping
Loan Action Records should be numbered according to the chronological order in which the Loan Actions occurred and placed in the loan file along with the supporting documentation, if any.
3. Review by Legal Counsel
a. Legal Counsel must review and comment on the legal issues related to Loan Actions proposed by SBA Liquidation Officers, as well as Lenders and CDCs who have submitted requests on Loan Actions requiring SBA approval, if the proposed Loan Action involves:
(1) Any issue concerning a loan classified in litigation status;
(2) Any issue with legal implications including CDC requests for reassignment of Loan Documents and exceptions to policy;
(3) Conflicts of interest and Preferences;
(4) Acquisition of Contaminated Property or a business that handles Hazardous Substances;
(5) Purchase reviews pertaining to 7(a) Loan guaranties and 504 Loan debentures;
(6) Review of Litigation Plans and Liquidation Plans that include litigation expenses;
(7) Payment of attorneys' fees and costs;
(8) Compromise;
(9) Charge-off;
(10) Redemption rights;
(11) Substantive revisions to a Loan Authorization if SBA approval of the changes is required;
(12) Modification of the terms of any Loan Document;
(13) Workouts;
(14) Deeds in lieu of foreclosure;
(15) Transfer of a loan out of litigation status;
(16) Subordination;
(17) Assumption; or
(18) Transfer of title to REO.
b. Legal Counsel should review and comment on the legal issues related to Loan Actions proposed by SBA Liquidation Officers, as well as Lenders and CDCs who have submitted requests on Loan Actions requiring SBA approval, if the proposed Loan Action involves:
(1) Transfers of a loan into litigation status;
(2) Sale of a loan;
(3) Transfer of a loan to another 7(a) Lender or CDC;
(4) Release or substitution of collateral;
(5) Release or substitutions of Obligors;
(6) Purchase, pay off, or payment on a loan secured by a senior lien;
(7) Payment of real estate taxes;
(8) Protective Bids;
(9) Credit Bids; or
(10) Abandonment of collateral or acquired collateral.
4. Split Decisions
If the Approving Official does not approve a proposed Loan Action that requires approval by the Rule of Two, the Approving Official must add comments and recommendations and refer the matter to the SBA official with the next higher level of decision-making authority.
5. Exceptions to Policy
When the policy set forth in this SOP does not adequately address the unique circumstances regarding a particular loan, an exception to policy may be appropriate provided it does not contravene any applicable regulation. Exceptions to policy must be approved by the Director of OFA or designee pursuant to the Rule of Two and documented by a Loan Action Record.
Note: See Chapter 22 (7(a) Guaranty Purchase), Chapter 23 (Denial of Liabilityon a 7(a) Guaranty) and Chapter 25 (Debenture Purchase) for information on authority to deny liability or to recover funds already paid on a 7(a) guaranty or 504 Loan debenture.
D. Review of Quarterly Status Reports
1. Liquidation Officer
Liquidation Officers should promptly review the Quarterly Status Reports submitted by 7(a) Lenders following guaranty purchase and by CDCs following debenture purchase to ensure that the loan is being liquidated in a prompt, cost-effective, prudent and commercially reasonable manner consistent with Loan Program Requirements; and must provide a copy of any report that covers Non-routine Litigation conducted by a 7(a) Lender or CDC and Routine Litigation conducted by a CDC to the local District Counsel responsible for monitoring the litigation.
2. District Counsel
The SBA District Counsel responsible for the geographic area where the litigation is taking place should promptly review Quarterly Status Reports covering Non-routine Litigation conducted by a 7(a) Lender or CDC and Routine Litigation conducted by a CDC to ensure that:
E. Review of Requests for Loan Action Approval
1. Liquidation Officer
Liquidation Officers are responsible for serving as the Recommending Official and reviewing all requests from 7(a) Lenders and CDCs for approval to take actions requiring SBA's prior written approval.
2. Legal Counsel
Legal Counsel are responsible for reviewing and commenting on the legal issues related to all requests from 7(a) Lenders and CDCs for approval to take actions set out above in Paragraph B.3.
3. Approving Official
Supervisory Liquidation Officers serve as the Approving Official with regard to all requests from 7(a) Lenders and CDCs for approval to take actions requiring SBA's prior written approval.
4. No Approval if 7(a) Lender or CDC Has Unilateral Authority
SBA's written approval should not be provided for proposed Loan Actions that a 7(a) Lender or CDC has unilateral authority to take.
5. SBA Response Time
Generally, SBA should respond to a 7(a) Lender or CDC's request for approval of proposed actions requiring SBA's prior written approval within 15 business days. (13 C.F.R. § 120.541(a))
When an SOP is not strictly followed, this provides an SBA debtor an opportunity to investigate and possibly consider an Appeal to the SBA Office of Hearings and Appeals - especially when the failure to follow an SBA SOP contributes or causes an adverse outcome to an SBA debtor's situation in violation of his or her administrative due process rights.
Think of us - Protect Law Group, APC - as your "go to" team for whatever needs you may have in the SBA loan problem resolution world.
We can provide professional help at specific SBA touch points upon default from loan restructuring to loan problem defense & negotiation liquidation and appeals to the SBA Office of Hearing & Appeals. To learn more about our SBA representation services, go to www.SBA-Attorneys.com or call us at 888-756-9969 to speak to one of our experienced SBA Workout Attorneys.
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 for $350,000. The small business failed but because of the personal guarantee liability, the client continued to pay the monthly principal & interest out-of-pocket draining his savings. The client hired a local attorney but quickly realized that he was not familiar with SBA-backed loans or their standard operating procedures. Our firm was subsequently hired after the client received the SBA's official 60-day notice. After back-and-forth negotiations, we were able to convince the SBA to reinstate the loan, retract the acceleration of the outstanding balance, modify the original terms, and approve a structured workout reducing the interest rate from 7.75% to 0% and extending the maturity date for a longer period to make the monthly payments affordable. In conclusion, not only we were able to help the client avoid litigation and bankruptcy, but our SBA lawyers also saved him approximately $227,945 over the term of the workout.
Client personally guaranteed an SBA 7(a) loan to help with a relative’s new business venture. After the business failed, Treasury was able to secure a recurring Treasury Offset Program (TOP) levy against his monthly Social Security Benefits based on the claim that he owed over $1.2 million dollars. We initially submitted a Cross-Servicing Dispute, but then, prepared and filed an Appeals Petition with the SBA Office of Hearings and Appeals (SBA OHA). As a result of our efforts, we were able to convince the SBA to not only terminate the claimed debt of $1.2 million dollars against our client (without him having to file bankruptcy) but also refund the past recurring amounts that were offset from his Social Security Benefits in connection with the TOP levy.
The clients are personally guaranteed an SBA 7(a) loan. The SBA referred the debt to the Department of Treasury, which was seeking payment of $487,981 from our clients. We initially filed a Cross-Servicing Dispute, which was denied. As a result, we filed an Appeals Petition with the SBA Office of Hearings and Appeals asserting legal defenses and supporting evidence uncovered during the discovery and investigation phase of our services. Ultimately, the SBA settled the debt for $25,000 - saving our clients approximately $462,981.
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