Can My Business Submit an Offer in Compromise for a Covid EIDL Loan?
Can My Business Submit an Offer in Compromise for a Covid EIDL Loan?
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 Point: U.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.
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.
This presentation contains images that were used under a Creative Commons License. Click here to see the full list of images and attributions:
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’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.
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.
Clients' 7(a) loan was referred to Treasury's Bureau of Fiscal Service for enforced collection in 2015. They not only personally guaranteed the loan, but also pledged their primary residence as additional collateral. One of the clients filed for Chapter 7 bankruptcy thinking that it would discharge the SBA 7(a) lien encumbering their home. They later discovered that they were mistakenly advised. The Firm was subsequently hired to review their case and defend against a series of collection actions. Eventually, we were able to negotiate a structured workout for $180,000 directly with the SBA, saving them approximately $250,000 (by reducing the default interest rate and removing Treasury's substantial collection fees) and from possible foreclosure.
.jpg)
