SBA Loan Defaults: Traditional Vices Ring Up Defaults
We will analyze your SBA loan problems and advise you on potential solutions such as an SBA offer in compromise for your SBA loan default.
We will analyze your SBA loan problems and advise you on potential solutions such as an SBA offer in compromise for your SBA loan default.
Book a Consultation CallDealing with the idea that you might be facing an SBA loan default can be terrifying. The SBA attorneys in our office are skilled at helping clients understand all the facets of their situation. We will advise you as to the potential for an SBA offer in compromise. You should never face your SBA loan problems alone. It is important to retain the services of an attorney who can help you through this difficult time in your life. Please contact us for a consultation.
When it comes to SBA loans many situations dictate that a borrower pledge their personal residence as collateral. Unfortunately, once there is an SBA loan default, the house is now at risk. Pursuant to the SBA standard operating procedures, real property collateral must be liquidated in a manner that will maximize recovery on the loan in the shortest amount of time. This could mean a foreclosure just like if you stopped paying your mortgage.
Fortunately, the SBA procedures do offer some relief. When a personal residence is the borrower's only worthwhile asset and there is no other prospect for recovery (e.g., from income in excess of that needed to meet living expenses), the lien may be released for consideration. In such cases, a good faith effort must be made to obtain not only an amount equal to the Recoverable Value of the residence as consideration for release of the lien, but also an additional amount sufficient to compromise the borrower's remaining liability. This means you have the opportunity to buy out the lien and the SBA must negotiate in good faith
A compromise offer should be solicited from each borrower as soon as it becomes apparent that there will be a deficiency after the collateral has been liquidated, provided that:
a. Collection of the deficiency is not barred by a valid legal defense such as discharge in bankruptcy or the statute of limitations;
b. The borrower has not engaged in fraud, misrepresentation or other financial misconduct; and
c. The borrower does not appear to have the ability to pay the deficiency in full within a reasonable amount of time; or the borrower refuses to pay the deficiency in full, and the full amount cannot be recovered through cost-effective enforced collection proceedings within a reasonable amount of time.
This means, for instance, if you owe $200,000 on your loan, if your house is worth $100,000, if you have a $80,000 mortgage and the SBA is in second position you could free your house for $20,000 and negotiate the remaining $180,000 based on your ability to pay. Having your house held hostage is not a great position to be in, but there are alternative.
If you would like a consultation about your SBA loan default, contact us at 1-888-756-9969 or fill out the form below and a qualified SBA attorney will contact you.
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' 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.
Client personally guaranteed SBA 7(a) loan balance of $58,000. The client received a notice of Intent to initiate Administrative Wage Garnishment (AWG) Proceedings. We represented the client at the hearing and successfully defeated the AWG Order based on several legal and equitable grounds.
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.
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