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
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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’s small business obtained an SBA 7(a) loan for $750,000. She and her husband signed personal guarantees exposing all of their non-exempt income and assets. With just 18 months left on the maturity date and payment on the remaining balance, the Great Recession of 2008 hit, which ultimately caused the business to fail and default on the loan terms. The 7(a) lender accelerated and sent a demand for full payment of the remaining loan balance. The SBA lender’s note allowed for a default interest rate of about 7% per year. In response to the lender's aggressive collection action, Client's husband filed for Chapter 7 bankruptcy in an attempt to protect against their personal assets. However, his bankruptcy discharge did not relieve the Client's personal guarantee liability for the SBA debt. The SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection against the Client to the SBA. The Client then received the SBA Official 60-Day Notice. After conducting a Case Evaluation with her, she then hired the Firm to respond and negotiate on her behalf with just 34 days left before the impending referral to Treasury. The Client wanted to dispute the SBA’s alleged debt balance as stated in the 60-Day Notice by claiming the 7(a) lender failed to liquidate business collateral in a commercially reasonable manner - which if done properly - proceeds would have paid back the entire debt balance. However, due to time constraints, waivers contained in the SBA loan instruments, including the fact the Client was not able to inspect the SBA's records for investigation purposes before the remaining deadline, Client agreed to submit a Structured Workout for the alleged balance in response to the Official 60-Day Notice as she was not eligible for an Offer in Compromise (OIC) because of equity in non-exempt income and assets. After back and forth negotiations, the SBA Loan Specialist approved the Workout proposal, reducing the Client's purported liability by nearly $142,142.27 in accrued interest, and statutory collection fees. Without the Firm's intervention and subsequent approval of the Workout proposal, the Client's debt amount (with accrued interest, Treasury's statutory collection fee and Treasury's interest based on the Current Value of Funds Rate (CVFR) would have been nearly $291,030.
Clients personally guaranteed an SBA 504 loan balance of $337,000. The Third Party Lender had obtained a Judgment against the clients. We represented clients before the SBA and negotiated an SBA OIC that was accepted for $30,000.
Clients borrowed and personally guaranteed an SBA 7(a) loan. Clients defaulted on the SBA loan and were sued in federal district court for breach of contract. The SBA lender demanded the Client pledge several personal real estate properties as collateral to reinstate and secure the defaulted SBA loan. We were subsequently hired to intervene and aggressively defend the lawsuit. After several months of litigation, our attorneys negotiated a reinstatement of the SBA loan and a structured workout that did not involve any liens against the Client's personal real estate holdings.
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