The transcript of the video follows below for further review.
In fiscal year 2014, the Office of Inspector General (OIG) established the High Risk 7(a) Loan Review Program to minimize losses on Small Business Administration (SBA) guaranteed loans, help SBA improve the effectiveness and integrity of its 7(a) Program, and protect program dollars.
The OIG reviewed eight (8) early-defaulted loans and consequently identified material lender origination and closing deficiencies that justified denial of the SBA guaranty for three (3) loans totaling $3.2 million.
To facilitate SBA’s timely review and recovery of these payments, the OIG formally issued separate reports on each loan that included detailed descriptions of the identified material deficiencies. The OIG also identified suspicious activity on two (2) purchased loans totaling $1.4 million, resulting in formal referrals to the Investigations Division.
In the OIG’s judgment, change of ownership transactions continued to be an area of high risk for the SBA. Further, three out of the five loans that were either formally reported on, or referred due to potentially fraudulent activity, were included in SBA’s FY 2015 review of improper payments. SBA did not identify the improper payments on these loans. In a previous audit, the OIG determined that SBA’s limited reviews of the original lender’s underwriting guidelines resulted in improper payments.
Some of the key reviews detailed in the OIG report are highlighted below:
Change of Ownership Transactions
The OIG indicated that 8 of the 15 loans that were reviewed had financed change of ownership transactions. Additionally, 4 of these 8 loans, purchased for a total of $2.8 million, either had material lender deficiencies or indications of suspicious activity. The OIG believes that change of ownership transactions has been one of the riskiest transactions financed by SBA. Prior audits have identified the following deficiencies in change of ownership transactions:
Further, the Investigations Division has identified significant fraud in change of ownership transactions. In FY 2009, the OIG issued an information notice that recommended lenders and other program participants perform a higher level of due diligence in reviewing change of ownership transactions.
Identifying Improper Payments
While the OIG noted improvement in SBA’s 7(a) purchase review process, it remains concerned about the effectiveness of SBA’s efforts to prevent improper payments. Specifically, four loans the OIG formally reported on or referred to the Investigations Division were included in either SBA’s FY 2014 or FY 2015 reviews for improper payments. During its improper payments reviews, SBA examines loan files to determine if lenders complied with the 7(a) Loan Program requirements.
SBA did not identify or report the improper payments totaling $4.5 million associated to these loans. Upon receiving these reports, SBA substantially concurred with the OIG findings on the loans and confirmed them as improper payments.
A complete copy of the OIG’s Report to Congress can be found here: The OIG High Risk SBA 7(a) Loan Review Report
If you are facing an SBA loan default, contact us today for a consultation with an experienced SBA workout attorney at 888-756-9969
We analyze your SBA loan problems and advise you on potential solutions such as an SBA offer in compromise for your SBA loan default.
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 COVID EIDL for $301,000 pledging collateral by executing the Note, Unconditional Guarantee and Security Agreement. The business defaulted on the loan and the SBA CESC called the Note and Guarantee, accelerated the principal balance due, accrued interest and retracted the 30-year term schedule.
The loan was transferred to the Treasury's Bureau of Fiscal Service which resulted in the statutory addition of $90,000+ in administrative fees, costs, penalties and interest with the total debt now at $391.000+. Treasury also initiated a Treasury Offset Program (TOP) levy against the client's federal contractor payments for the full amount each month - intercepting all of its revenue and pushing the business to the brink of bankruptcy.
The Firm was hired to investigate and find an alternate solution to the bankruptcy option. After submitting formal production requests for all government records, it was discovered that the SBA failed to send the required Official 60-Day Pre-Referral Notice to the borrower and guarantor prior to referring the debt to Treasury. This procedural due process violation served as the basis to submit a Cross-Servicing Dispute to recall the debt from Treasury back to the SBA and to negotiate a reinstatement of the original 30-year maturity date, a modified workout, cessation of the TOP levy against the federal contractor payments and removal of the $90,000+ Treasury-based collection fees, interest and penalties.
Clients obtained an SBA 7(a) loan for their small business in the amount of $298,000. They pledged their primary residence and personal guarantees as direct collateral for the loan. The business failed, the lender was paid the 7(a) guaranty money and the debt was assigned to the SBA. Clients received the Official 60-Day Notice giving them a couple of options to resolve the debt balance directly with the SBA before referral to Treasury's Bureau of Fiscal Service. The risk of referral to Treasury would add nearly $95,000 to the SBA principal loan balance. With the default interest rate at 7.5%, the amount of money to pay toward interest was projected at $198,600. Clients hired the Firm with only 4 days left to respond to the 60-Day due process notice. Because the clients were not eligible for an Offer in Compromise (OIC) due to the significant equity in their home and the SBA lien encumbering it, the Firm Attorneys proposed a Structured Workout to resolve the SBA debt. After back and forth negotiations, the SBA Loan Specialist assigned to the case approved the Workout terms which prevented potential foreclosure of their home, but also saved the clients approximately $294,000 over the agreed-upon Workout term with a waiver of all contractual and statutory administrative fees, collection costs, penalties, and interest.
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.
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