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SBA Loan Default: Fraud By The Original Seller Of The Small Business

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SBA Loan Default: Fraud By The Original Seller Of The Small Business

As a responsible party (stemming from an SBA Note or SBA Unconditional Guarantee) for an SBA loan default or SBA debt that has been transferred to the Treasury’s Bureau of Fiscal Service, you may want to consider challenging your liability for the alleged debt by investigating whether the original seller of the small business that you purchased (through an SBA-guaranteed loan) may have engaged in fraud or misrepresentation in the sale and purchase of the subject small business based on inflated or fraudulent financials.

Case in PointU.S. v. Rood

Todd E. Rood was the owner of Rood Machine & Engineering when he falsified documents in 2015 and 2016 to make his business look more attractive than it actually was. By altering his business’s bookkeeping records, Rood inflated its income by approximately $583,827 and lowered its liabilities by reclassifying them.

https://www.sba-attorneys.com/wp-content/uploads/2018/07/sba-loan-default-fraud-by-the-original-seller-of-the-small-business.mp4

Rood, who pleaded guilty to SBA loan application fraud, admitted making false statements to the buyers’ bank in order to defraud the buyers and their financial institution – which was a participating SBA lender. The loss to the SBA lender and the small business buyers amounted to approximately $1,347,608.

Rood’s company was purchased for $2.05 million based on the fraudulent financial documents. A $1.74 million loan used to purchase the small business was guaranteed by the Small Business Administration (SBA).

According to court documents, the buyers of Rood’s small business also undertook a "quick sale" of their home in order to buy Rood Machine & Engineering on the timetable set forth by Rood, who falsely claimed to have terminal colon cancer.  The buyers incurred a loss of $40,000 on their home as a result.

Under the terms of his plea agreement, Rood must pay the company's buyers $262,000 in restitution for their closing costs as well as a required cash infusion into the business.

Rood was sentenced to four years in a federal prison without parole. Rood also has been ordered by the federal court to pay $1,347,608 in restitution and a money judgment to the government of $1,207,979, which covers his profit from the sale.

To view a copy of Rood’s Plea Agreement, click here

If you are facing an SBA loan default involving an SBA Unconditional Guarantee or a Treasury/Bureau of Fiscal Service debt problem, contact us today for a FREE initial consultation with an experienced SBA or Treasury workout attorney at 1-888-756-9969

We can analyze your SBA loan, Treasury/BFS debt or Private Collection Agency problem and advise you on a range of potential solutions.

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Why Hire Us to Help You with Your Treasury or SBA Debt Problems?

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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.

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As part of the business closure review and audit, we worked closely with the SBA to negotiate a resolution. The borrower was required to pay only $1,625 to release the remaining collateral, effectively closing the matter without further financial liability for the owner/officer.

This case highlights the importance of strategic negotiations when dealing with SBA settlements, particularly for businesses that have shut down due to unforeseen economic challenges. If you or your business are struggling with SBA loan debt, we focus on SBA Offer in Compromise (SBA OIC) solutions to help settle outstanding obligations efficiently.

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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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