SBA Plan for Economic Growth, Fewer Instances of SBA Loan Default
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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.
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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 executed several trust deeds pledging seven (7) real estate properties and unconditional personal guarantees for an SBA 7(a) loan from the participating lender. The clients' small business failed and eventually defaulted on repayment of the loan exposing all collateral pledged by the clients. The SBA subsequently acquired the loan balance from the lender, including the right to liquidate and collect all pledged collateral pursuant to the trust deed instruments.
The Firm was hired to negotiate separate release of lien proposals for all 7 real estate properties. In preparation for the work assignment, the Firm Attorneys initiated discovery to secure records from the SBA and Treasury's Bureau of Fiscal Service. After reviewing the records and understanding the interplay between the lender and the SBA, the attorneys then prepared, submitted and negotiated the release of lien (ROL) for each of the 7 real estate properties for consideration.
After submitting the proposals, the assigned SBA Loan Specialists approved each ROL package - significantly reducing the total SBA debt claimed.
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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