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The SBA's new Standard Operating Procedure (SOP) regarding SBA Personal Guarantees

We help people who need to avoid SBA loan default by teaching them about SBA offer in compromise and about various SBA loan problems such SBA Personal Guarantees

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The SBA's new Standard Operating Procedure (SOP) regarding SBA Personal Guarantees

We provide individuals who are facing either SBA Personal Guarantees, SBA loan default or DOT collection action with solutions. For instance, we help you understand different SBA loan problems or Treasury Department collection actions and teach you about either the SBA offer in compromise or DOT compromise package.

As we reported before on a previous blog entry, on January 1, 2014, SOP 50 10 5(F) became effective.  This SBA Standard Operating Procedure (SOP) significantly alters the collateral requirements for SBA loans with regard to the types of assets that principals of borrowers must now pledge or mortgage.

Under this new SOP, principals are only required to pledge their personally owned real estate if their loan is not otherwise fully secured. In addition, there is no longer any requirement that principals pledge their publicly traded securities or other non-real estate assets.

As a practical matter, when combined with the proposed repeal of the resources test, this means that individuals and entities with substantial personal wealth may now serve as personal guarantors on SBA loans, and SBA lenders may be in a position to pursue and collect significant unsecured assets when litigating against those guarantors. Simply put, personal guarantors will have more at stake, and they will have the resources needed to secure litigation defense counsel, protect and defend their assets and possibly assert lender liability claims against their lender or bank.

Under SOP 50 10 5(F), lenders will, for the first time, have the option to use their own customized SBA personal guarantee agreements instead of using SBA Form 148 (or Form 148L), as long as their personal guarantee agreements are “equivalent” to the terms found in the SBA’s Forms.

This means that SBA lenders may be able to include clauses and terms in their personal guarantee agreements that were not previously included in the SBA’s standard forms.

However, as defense counsel for many personal guarantors of defaulted SBA Loans, it should be advised that SBA lenders should seriously reconsider taking advantage of this opportunity to craft their own personal guarantee agreements with clauses or provisions that are entirely favorable to to them at the expense of the personal guarantor as they may easily find themselves having to defend their personal guarantee agreements based on arguments of typical affirmative defenses, such as, unfairness, bad faith, breach of covenant of good faith and fair dealing, contract of adhesion, unconscionability, and/or misrepresentation.

As noted above, the anticipated changes in terms regarding personal guarantees in light of SOP 50 10 5(F) will likely become more important as lenders begin enforcing their SBA personal guarantee agreements against individuals who have sufficient personal resources to retain defense counsel and defend the claims of the lenders.

The landscape between SBA personal guarantors of defaulted SBA loans and purportedly aggrieved lenders or banks has changed dramatically.  Both parties should be apprised of this new frontier and get ready to rumble.

The attorneys in our office want to help you figure out your SBA or DOT situation. No matter how difficult your circumstances may seem, the right lawyer can assist you. We understand that you probably have questions regarding a wide range of issues, including how to respond to an SBA or DOT demand letter, what SBA loan foreclosure actually entails, and what a tax offset program is. One of our specialists can tell you about all of these topics and more. We urge you to read our blog to learn more about subjects that are confusing to you and to contact us right away if you have specific questions. We look forward to working with you during this period of your life.

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$166,000 SBA 7A LOAN - NEGOTIATED WORKOUT AGREEMENT

$166,000 SBA 7A LOAN - NEGOTIATED WORKOUT AGREEMENT

Clients executed personal and corporate guarantees for an SBA 7(a) loan from a Preferred Lender Provider (PLP). The borrower corporation defaulted on the loan exposing all collateral pledged by the Clients. The SBA subsequently acquired the loan balance from the PLP, including the right to collect against all guarantors. The SBA sent the Official Pre-Referral Notice to the guarantors giving them sixty (60) days to either pay the outstanding balance in full, negotiate a Repayment (Offer in Compromise (OIC) or Structured Workout (SW)), challenge their alleged guarantor liability or file a Request for Hearing (Appeals Petition) with the SBA Office of Hearings & Appeals.

Because the Clients were not financially eligible for an OIC, they opted for Structured Workout negotiations directly with the SBA before the debt was transferred to the Bureau of Fiscal Service, a division of the U.S. Department of Treasury for enforced collection.

The Firm was hired to negotiate a global Workout Agreement directly with the SBA to resolve the personal and corporate guarantees. After submitting the Structured Workout proposal, the assigned SBA Loan Specialist approved the requested terms in under ten (10) days without any lengthy back and forth negotiations.

The favorable terms of the Workout included an extended maturity at an affordable principal amount, along with a significantly reduced interest rate saving the Clients approximately $181,000 in administrative fees, penalties and interest (contract interest rate and Current Value of Funds Rate (CVFR)) as authorized by 31 U.S.C. § 3717(e) had the SBA loan been transferred to BFS.

$50,000 SBA 7A LOAN - RESPONSE TO SBA OFFICIAL 60-DAY NOTICE

$50,000 SBA 7A LOAN - RESPONSE TO SBA OFFICIAL 60-DAY NOTICE

Client received the SBA's Official 60-Day Notice for a loan that was obtained by her small business in 2001.  The SBA loan went into default in 2004 but after hearing nothing from the SBA lender or the SBA for 20 years, out of the blue, she received the SBA's collection due process notice which provided her with only one of four options: (1) repay the entire accelerated balance immediately; (2) negotiate a repayment arrangement; (3) challenge the legal enforceability of the debt with evidence; or (4) request an OHA hearing before a U.S. Administrative Law Judge.

Client hired the Firm to represent her with only 13 days left before the expiration deadline to respond to the SBA's Official 60-Day Notice.  The Firm attorneys immediately researched the SBA's Official loan database to obtain information regarding the 7(a) loan.  Thereafter, the Firm attorneys conducted legal research and asserted certain affirmative defenses challenging the legal enforceability of the debt.  A written response was timely filed to the 60-Day Notice with the SBA subsequently agreeing with the client's affirmative defenses and legal arguments.  As a result, the SBA rendered a decision immediately terminating collection of the debt against the client's alleged personal guarantee liability saving her $50,000.

$310,000 SBA 7A LOAN - SBA OIC TERM WORKOUT

$310,000 SBA 7A LOAN - SBA OIC TERM WORKOUT

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.

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