Lerch early sba sop 50 57 7(a) loan servicing and liquidation seminar 2013 02-27
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Outline of the new SBA SOP 50 57 7(a) by Lerch Early SBA lending attorneys.
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Lerch early sba sop 50 57 7(a) loan servicing and liquidation seminar 2013 02-27
- 1. The New SBA SOP 50 57 7(a) Loan Servicing & Liquidation Alison Rind Arnold Spevack Jeffrey Sherman Lerch, Early & Brewer, Chtd. ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ www.lerchearly.com February 27, 2012
- 2. Overview Introduction Review of Ch. 1-26 Questions 2 © Lerch, Early & Brewer, Chtd. 2012 www.lerchearly.com
- 3. Introduction ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Replaces SOP 50 50 (Servicing) and 50 51 (Liquidation) Applies to 7(a) Loans only Effective March 1, 2013 Leaves More to Lender’s Judgment Matrix Needs Updating 3 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 4. Ch. 1: Performance Standards and Exceptions to Policy ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Lender must service in diligent, conflict of interest and preference free, commercially reasonable manner Use own procedures so long as not inconsistent with SOP If SOP contains “must”, then any deviation must be treated as exception 4 to policy © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 5. Ch. 2: Definitions ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Definitions specific to this SOP Terms Capitalized throughout SOP New Defined Terms Added 5 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 6. Defined Terms ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Appraisal Seasoned Computer Loan Tracking Repair System Service Loan Action Request Record Site Visit Loan File Report Material Loss 6 (comprehensiv © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 7. Ch. 3: Lender’s Responsibility and Authority ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Incorporates List of Activities simliar to matrix Sometimes contradicts Matrix – follow SOP 50 57 All actions to be documented in Loan File or Computer Tracking System 7 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 8. Ch. 4: Loan Payment Administration ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ If Loan in liquidation, all payments applied: Principal Interest Expenses Unless payments are under workout or court ordered 9 agreement (new) © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 9. Ch. 5: Environmental Risk Management ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Environmental Investigation Process for loans in liquidation Remedial Actions by Lender Taking Title to Contaminated Property 10 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 10. Ch. 6: Servicing Requests ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Must Enter All Actions Loan File or Computer Tracking System Obtain supporting documentation 2 yrs federal tax returns now required How to obtain SBA approval 11 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 11. Ch. 7: Modification of Note ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Obtain secondary market approval if loan is sold on the secondary market Alternatives if approval not granted Extensions of Maturity Date 12 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 12. Ch. 8: Modification of Collateral Requirements ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Guidance for: Subordination Substitution Release of Lien Release of Borrower or Guarantor Release of Condemnation 13 Proceeds © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 13. Ch. 9: Insurance Coverage ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Review Flood Coverage for every service request Responsibility for Maintaining Insurance Forced Placed Insurance Release of Proceeds Escrow Account 14 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 14. Ch. 10: Modification of Management Covenants ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Any modifications should be consistent with servicing goals Compensation, Dividends, Fixed Assets – Seasoned Loans Standby Agreements No modification if part of equity injection unless permitted by SOP 50 10 15 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 15. Ch. 11: Assumption/Assignment or Sale of Loan ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ New Requirement Add due on death or sale (prohibits future assumptions) Unilateral Authority SBA must approve if Borrower or Guarantor released No installment sales 16 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 16. Ch. 12: Deferments ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Temporary Solution to Temporary Problem One time 3 month deferment if loan sold on secondary market Up to 6 Consecutive Months- Loan not sold on secondary market 17 Possible ©additional deferments if Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 17. Ch. 13: Delinquent Secured Senior Loans ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Guidance for Strategies when other senior lien is in place Protective Bids No Bids Less than 10% liquidation value 18 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 18. Ch. 15: Site Visits ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Follow Procedures (very specific) Required unless loan is unsecured or aggregate recoverable value of personal property collateral 19 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 19. Ch. 16: Workouts ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ New Guidance Provided If not in place in reasonable time (i.e., 60 days), move forward with enforcement Consideration to be provided Options Required Provisions SBA approval only if compromise or 20 other action taken requiring SBA © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 20. Ch. 17: Real Property Liquidation ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ General Requirements Receiverships Only in exceptional circumstances Litigation plan needed 21 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 21. Ch. 18: Personal Property Liquidation ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Guidelines Provided Private Sales vs Public Sales Timeframe Abandonment 22 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 22. Ch. 14: Classifying Loans in Liquidation ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Not mandatory “should” language included Demand letters Application of payment requirements for loans in liquidation Liquidation Plans 23 Removal from Liquidation Status © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 23. Ch. 19: Acquired Collateral ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Ownership Responsibilities Expenses Leases (generally not allowed) 24 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 24. Ch. 20: Offer in Compromise ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Multiple obligors Going Concern Review of Offer Payment Terms 25 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 25. Ch. 21: Litigation ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Litigation Plans Approval of Attorney’s Fees Bankruptcy Proceedings 26 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 26. Ch. 22: Expenses and Recovery ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Expenses in excess of $5,000 Contents of Request Packages 27 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 27. Ch. 23: Loan Guaranty Purchase Request ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Interest Rate and Payment of Interest Requirements 10 Tab System Practice Tips 28 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 28. Ch. 24: Denial of Liability on 7(a) Guaranty ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Repairs and Denials Examples Eligibility Early Default IRS Verifications Collateral Cash Injection 29 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 29. Ch. 25: Inspector General Referrals ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Duty to Report Examples Fraud in application or closing Misuse of proceeds Lender misconduct SBA employee misconduct 30 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 30. Ch. 26: Charge Off and Wrap Up Procedures ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ When appropriate Wrap up report Treasury Referral Post Referral Servicing by Treasury Notifications required Bankruptcy or litigation 31 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 31. Questions ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ 32 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 32. Speakers ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Alison Rind is an SBA lending attorney at Lerch, Early & (301) 657-0750 Brewer who represents awrind@ lerchearly.com commercial lenders in loan transactions and other commercial matters. These include participants in SBA and other government- guaranteed lending programs. 33 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 33. Speakers ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Arnie Spevack is a commercial lending attorney (301) 657-0749 adspevack@ at Lerch, Early & Brewer lerchearly.com who represents businesses, lenders and borrowers in financings, closings, negotiations and in the 34 courts. © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 34. Speakers ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Jeff Sherman is a creditors' rights and bankruptcy attorney (301) 841-3843 at Lerch, Early & Brewer who jmsherman@ advocates for creditors and lerchearly.com debtors of all types, trustees, committees and third parties affected by bankruptcy proceedings, including related bankruptcy and non- bankruptcy litigation. 35 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
- 35. For more information ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ Lerch, Early & Brewer, Chtd. 3 Bethesda Metro Center, Suite 460 Bethesda, MD 20814 (301) 986-1300 www.lerchearly.com Thank you for your participation 36 © Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com
Hinweis der Redaktion
- AWR
- AWRDue to time constraints, we will attempt to highlight the new, changed or particularly important provisions.There will be a separate SOP for 504 loans – currently in review.Can pull this up on sba.gov- no track changesChanges require an update to the Servvicing matrix – to the extent there is a conflict, SOP 50 57 governs
- ADS SBA loans must be serviced and liquidated in a diligent, conflict of interest and Preference-free, commercially reasonable manner that is consistent with the Loan Authorization, prudent lending practices and the SBA Loan Program Requirements. Nationally-chartered and state-chartered Lenders that have a non-SBA commercial loan portfolio may use their own loan servicing and liquidation procedures provided that their procedures: (a) are acceptable to their regulators; (b) meet or exceed those used for their similarly-sized non-SBA guaranteed commercial loans; and (c) are not inconsistent with SBA Loan Program Requirements. Note the use of the word “must” – wherever the SOP uses the word “must” over-rides other servicing procedures that lender may be using. Exceptions to policy are only appropriate when policy set forth in SOP does not address unique circumstances of a particular loan. Must submit request for policy exceptions through appropriate SBA Loan Center and the Director of the Office of Financial Assistance.
- AWRYou should familiarize yourselves with the definitions as additional guidance is provided within the definitions.
- AwrFor Example – appraisl – detailed description of requirements, qualification of appraiser, how to apply in substitution of collateral , rlease of collateral, format and age of appraisalComputer Tracking System – new- electronic method lender or SBA maintains recordFinancial Hardship- inability to pay for basic living expenses as defined by IRSLoan Action Record now includes electronic documentsMaterial Loss now $5000 for pp and $10,000 for rp (double)Repair amended to provide no change in guaranty or pro-rata expensesNew – Seasoned Loan – 18 mos from initial or 18 months aftr final disbursement I f more than 6 mos since initial disbursement or if there was a default but Borrower cured it and for 12 months …Post default site visit – broadens scopeSupporting Document – new- document relied on
- ADS Review Servicing Matrix. Lender’s responsible for servicing and liquidating the entire debt all SBA loans in their portfolio both before and after SBA purchase of guaranteed portion. Lenders responsible for conducting all litigation to ensure recovery on all SBA loans in their portfolios with exception of loans referred to Treasury. Review SOP for Unilateral Actions where notice to SBA is required and Actions where SBA prior approval is required before Loan action can be taken: (1) Exception to policy; (2) Lender preference; (3) Lender conflict of interest; (4) Sale or lease of collateral to Lender, an Obligor or someone closely associated with a Lender or Obligor; (5) Release of co-Borrower or Guarantor; (6) Compromise of principal loan balance; (7) Release of an Obligor in conjunction with an Assumption; (8) Liquidation or Litigation Plans; (9) Taking title in SBA’s name and Contaminated property in SBA’s or Lender’s name; (10) Other actions dealing with Contaminated property under certain circumstances; (11) Increase in loan amount; and (12) Other specified situations – Review SOP language. Lender responsible for monitoring all loans and maintenance of fairly detailed records concerning all servicing and liquidation Loan Action Decisions. General rule is Lenders must retain Loan Files for at least 6 years after final disposition – paid in full or charged off. Monitoring requirements include: (1) creditworthiness – Obligor structural changes, moving, etc; (2) collect financial statements and verification of 4506-T (prohibition on default interest rate); (3) UCC filings and continuation filings; (4) payment of taxes and assessments which could prime loan; (5) Monthly 1502 Report filings and other status reports; (6) Site Visit Report; (7) Wrap-up Report upon completion of liquidation
- AwrThis only applies once loan is in liquidation – SOP unclear as to when you must place it in liquidation. – NEWUnless workout,court orderedLanguage about placing in liquidatioo is “should” – so even though there may a default, if payments are current, lender may choose not to place in liquidation status.NAGGL seeking clarification
- AWR
- ADS Review SOP for Environmental Risk Management requirements. Note particular requirements for gas stations and dry cleaners. Note Practice Tip in §E.4 on page 37 re: avoidance of “participating in the management” of Borrower business. Particular requirements on page 37 in §G re: opinion of counsel prior to taking action and §H.2 re: SBA prior written consent before taking title to Contaminated Property or operation of business using Hazardous Substances
- AWRDetailed guidance provided. ALL actions must be reviewed, analyzed and acted upon in accordance with prudent lending practices - goal – action needed to help borrower’s short term and long term needs without impairing the integrity of the program
- AWRIf secondary market will not agree, and borrower’s viability is at stake, lender may request permission from SBA to repurchase the loan by submitting a written request with supporting documentation. Can extend up to 10 yrs beyond original maturity if requested before guaranty expires (180 days after maturity and the extension will aid the orderly repayment of the loan. – don’t need to pay additional guarantee fee if extension is in conneection with liquidation status to allow orderly repayment. Loan balance reductions – only in compromise
- AWRDetailed lists of due diligence needed, subordinations, collateral substitutions, releases of liens, releases of borrower or guarntor
- ADS Note General Rule in §C.5.a on page 60 that when SBA or the Lender is named as the loss payee on a hazard insurance policy, the proceeds should not be released to the policyholder – particularly where insurance proceeds ≥ $100,000 and exception for controlled release of insurance proceeds through an escrow agent or disbursement of progress payments. See recommendation for using escrow accounts to ensure that life insurance premiums are being paid on page 61.If servicing request is made- flood must be re-determined
- ADS General rule Borrower must comply with management covenants in Loan Documents unless modification is appropriate. Note general rule for modification of standby agreements on limited circumstances for seasoned loans where loan, based on analysis of prior 3 months’ cash flow has ability to service debt, and minimal risk of loan default. Prohibition on modification where modification of standby agreement relating to equity injection.
- ADS See general rules for Assumptions – CAVEAT: Existing Obligors must not be released without SBA’s prior written approval. Loans in liquidation status may be sold to someone other than a Borrower – See general requirements on page 66.
- AWRSee above
- AWRSee above
- AWRIn repurchase, Herndon is looking for specific actions. Now, New SOP is very detailed in analysis.
- ADS General requirements for workouts begin on page 85. Importance of site visits to determine whether the Borrower is: (1) competent, i.e., has the necessary technical and management skills to turn the business around; (2) cooperative, i.e., willing to take the necessary action to address the problems that caused the default; (3) acting in good faith, and (4) financially and operationally viable. If an acceptable workout plan is not in place within a reasonable time, (e.g., 60 calendar days), the Lender should move forward with its plan for enforced debt collection.
- AWRIf real propertyvalue is $10,000 or more, must liquidate unless there is a documented compelling reason not to do so – ie, current sstatus of DC residential foreclosure law. Check military service status
- AWRIf Revoerable Value greater than $5000, must liquidate unless compelling reason not toOrder appraisalLiquidate prior to repurchase
- ADS General Rule: SBA loan should be classified in liquidation if an event of default on the Note occurs, unless an Obligor has made acceptable arrangements to keep the loan current. See examples on page 75. Requirement for demand letters in SOP. Special requirements for collection against Obligors in military service. Lenders must prepare Liquidations Plans and, under certain circumstances, submit them to the SBA prior to taking action. See pages 77 and 78. Note – where SBA does not respond to Lender’s request for approval of Liquidation Plan within 10 business days, deemed approved.
- ADS Requirements for dealing with acquisition of collateral set forth beginning on page 109. General Rules: (1) When collateral is acquired, it should be liquidated in a manner that will maximize recovery in the shortest amount of time; (2) Title to collateral should not be acquired unless it is necessary to maximize recovery on the loan; (3) Title to collateral must not be taken in SBA's name without obtaining SBA's prior written approval; (4) Lenders that anticipate reselling REO within 120 calendar days should take title in their own name; (5) Lenders must not take title to Contaminated property in their own name—or SBA's name—without SBA's prior written approval; (6) Account for acquired collateral in a new file to segregate income and expenses from original Loan file; (7) Special rules for transfer of title by quitclaim deed and non-recourse bill of sale. See page 113 with regard to restrictions concerning sale to Obligors, Associates or Close Relatives of Borrower. Leases are strongly disfavored – See page 114.
- ADS Generally, an offer in compromise will be accepted if it reflects the Obligor’s true ability to pay, and will be rejected if the Obligor can pay the loan in full via a lump sum payment or an installment agreement, or if acceptance of the offer would harm the integrity of the SBA loan program. Requirements begin on page 117. No attempt should be made to divide payment responsibility between the Obligors or to use the compromise amount with one Obligor as the basis for the compromise amount required from another. Compromise with a going concern is only appropriate when the viability of the business concern is at stake and acceptance of the offer will not harm the integrity of the SBA loan program. See requirements on page 119. Lender obligation to verify obligation of Obligor’s financial disclosure and evaluate quid pro quo’s for SBA acceptance. Standard for Review (page 121): The compromise amount must bear a reasonable relationship to the amount that could be recovered in a reasonable amount of time through enforced collection proceedings and must be sufficient to protect the integrity of the SBA loan program. Minimum compromise amount ≥ $5,000. Lenders must obtain SBA’s prior written approval before entering into a compromise agreement that will result in less than full payment of the outstanding principal balance of the loan.
- ADS/JMS SBA very strict in requirements for litigation – and what expenses they will and will not reimburse a lender for. See page 128. Requirement for Litigation Plan – Requirements set forth beginning on page 126. Amend litigation plan where appropriate. General rule SBA will respond to requests for approval of a plan within 15 days – but, lack of a response from SBA does not mean that the plan has been approved. Issues: (1) Lenders should really prepare their own demand letters – as SBA; (2) More than 1 attorney absent exigent circumstances Lenders must obtain SBA’s prior written approval before entering into a compromise agreement that will result in less than full payment of the outstanding principal balance of the loan. mstances; (3) Travel – use local law firms; (4) Itemized bills; (5) Fees v. Recovery amount. Bankruptcy – Immediately notify SBA Loan Center.X Bankruptcy Litigation – What you can expect – Jeff Sherman
- AWRSee pages 135-139
- AWRIf variable rate, rate is fixed at the rate in effect at the earliest uncured payment default unless Express loan (capped at max rate at time of final disbursement.Loans approved after 5/14/07 – 120 daysRequirementsUncured payment default of 60 daysPlace in liquidation statusPurchase from secondary marketLiquidate pp collateral (unless prior to 5/14/07 – page 143Complete repurchase packageDeadline – 45 days from purchase on secondary and in all cases, within 180 days after maturity date or date lender completes liquidation of a matured loan.Tips – page 144
- AwrFailed to comply materially with Loan Program RequirementsFailed to make, close, service or liquidate in a prudent mannerPlaced SBA at risk through improper action or inactionFailed to disclose material fact timelyMisrepresented a material fact to SBA
- ADSSee requirements beginning on page 155 for circumstances where Lenders are required to refer irregularities to the OIG.
- AWRCharge off is SA administrative action whereby loan is reclassified from liquidation to charge off status and outstanding balance is removel from Agency’s accounting records. Done once all reasonable efforts for recovery are exhausted and cost for further recovery exceeds expected recorvey, bankrupptcyFile Wrap up report within 909 days of completio of reasonable and cost effective recovery or upon rrequet by SBASee page 160 for contentsIf no wrap up report, SBA can refer lender to OCRM and refer to Treasury.