BK does not discharge liens on collateral, so if you pledged your home, filing for BK won't release your home. He calls the bank and tells them that he will be closing his doors. In the blink of an eye, the Bank goes into liquidation mode, and immediately starts looking for a buyer of the equipment. They manage to find a buyer, which calls itself Getting A Great Deal Corp, who offers $10,000 for all the business assets. While the bank is taking a bath by letting the equipment go for only $10K, they don't really have any other alternatives, so they go ahead and sell the assets to Getting A Great Deal Corp. Most lenders will agree to consider a lien release, but in a case when you are not personally liable, your lender should not be requiring you to submit an OIC (and the associated paperwork). Why? Since you are not personally liable, your personal financial situation should not matter. All that should matter is how much equity is in the home. The lender should be making a business decision: is the offer you are making in exchange for the lien release going to result in the same amount of cash that they would expect in a foreclosure scenario? Pay for results, not time. The reason I charge the majority of my fee only upon a successful settlement is because I know that for most people, they don't want to sink a lot of money into hiring a workout consultant unless they get results. Hourly rates can end up costing you an arm and a leg while leaving you no better off. Here is the key to a legitimate transaction: Whether it be the sale of equipment, or the sale of the business as a whole, the SBA and your lender are only interested in "ARMS LENGTH" transactions. An arms length transaction can be defined as one where the buyer and seller are independent and act in their own best interest. So if they are easier to get a loan from, why am I saying that I'd never take an SBA loan from them? Here's why: When the you-know-what hits the fan and you can't afford your loan payment, community banks and credit unions tend to be quite rigid and unwilling to discuss an SBA Offer In Compromise. Is it possible to settle an SBA Disaster Loan? I recently had a client come to me for help. His lender had referred the file to the SBA for collection, so his window to negotiate directly with his lender had closed. Despite submitting the OIC through the lender being his best chance to settle, I thought he still had a decent chance to settle directly with the SBA. In my recent client's case, the bank already had a judgment against them, so time was of the essence since many banks will attempt to execute on a judgment as quickly as the law allows. For that reason, I was anxious to get the settlement submitted. My clients were not able to get their proof of income quickly, so we decided to submit the settlement offer without tax returns or proof of income because it was unclear how long it would take to get those items. As expected, after I submitted the OIC, the bank came back and requested 2011 personal tax returns. They were on extension (not uncommon), and in such cases we provide W2s instead. So after the personal financial statement had already been submitted, my client sent me his W2 which showed a huge amount of income from the prior year. Since they had many debts and expenses associated with their defunct business, we were able to piece together a spreadsheet that demonstrated where all the money went (showing why they didn't have much to offer right now). The problem was that much of the money was spend on "discretionary" items like vacations, toys, and eating out. When a lender sees that, their first thought is "wow, you owed us $500,000, and you decided to spend $15,000 on a vacation?". This rubs banks the wrong way, and could be used against you since they can argue that your offer was not made in good faith. In summary, the benefit of working with a SBA workout expert is that an expert can ensure that your OIC paperwork is thorough, concise, and comprehensive. They will include all the facts you need, and leave out the miscellaneous info that will only serve to water down the important facts. I always tell clients that preparing an OIC is not unlike renovating your kitchen. Sure, you could do it yourself, but if you hire an expert it's likely that the final product will be of higher quality, and the likelihood of a catastrophic mistake will be greatly reduced. To put it simply: whether or not you setlle, and how much you settle for, is largely dependant on who is reviewing your offer. And by "who", I mean which SBA office. In other words, if you had 5 people, all with the same exact financial circumstances, you would probably have 5 different outcomes depending on which SBA office is making the decision. Kind of crazy, right? Question: Does my business need to file for bankruptcy in order to qualify for a settlement? HESC makes repayment of your defaulted FFEL loan a fast, simple process. You can choose to have loan payments automatically deducted from your checking account http://isgisudino.exteen.com/20160821/get-a-personal-loan-with-no-credit-check Note: there are a number of SBA loan types (504, 7a, and Express are the most common), and they are all settled in different departments, and therefore settlement offers are viewed differently in different SBA departments. Not understanding the difference between all the loan types could mean your consultant is "winging it"). Will not charge large upfront fees. The largest part of the fee should be only due if your debt is successfully settled. Is SBA settlements all you do, or do you focus on a number of areas? Will SBA Loan Forgiveness Impact My Credit? This person is just mean in general, and it's their mission to spread their misery to as many folks as possible. They almost get joy out of tormenting you. They love to threaten to take your home, shut your business down, and sue you despite the fact that you are dealing in good faith. I used to have to foreclose on people, but there is a tactful way to explain the bank's position without demeaning or threatening a person. Some bankers enjoy being in a position of power, and will use their power to make your life unnecessarily uncomfortable. I suppose if my experience was limited, I'd avoid sharing that info too. Can they garnish my spouse's wages if they did not guarantee the debt? No. Like Kenny Rogers Said.. Defaulting on a student loan in the United States can have a number of negative consequences. To understand loan default, it is helpful to have a few common terms
Default loan
Client: I have a partner, so all I want is the banker to let me pay for my half of the loan. Is SBA Debt Forgiveness Taxable? For thousands of business owners, the failure of a business means more than just closing the doors and walking away. It also means dealing with the emotional anguish of having a piece of real estate forcibly taken from them by their lender. For many people, this is a confusing and stressful process. The purpose of this article is to explain how short sales work, what's involved, and factors that play into a successful short sale. For those not familiar with the process, the Offer In Compromise (OIC) must be submitted through the lender. When the lender submits the OIC to the SBA, the bank is asked whether they recommend that the offer be approved. In many cases, banks don't want to settle, which means the OIC is dead in the water before it even makes it over to the SBA. SBA Loan Default: What Are My Options? Just because you got a letter from the SBA does not mean that you will neccesarily be dealing directly with the office that sent the letter (Birmingham sends the letters). In some cases, they will direct you to Little Rock. In some cases, you will deal directly with Birmingham. And yet in come cases, they will send you back to the lender. A tangled web, right? the amazing part is that each office has their own nuances and will impact how much you can actually settle for. I mention all this for one main reason: I want to show you that this stuff is highly dependant on knowing lots of critical little tidbits. And guess what, I've got 'em! Run and Hide - If you want to have any hope to save your business, the worst thing you can possibly do is stick your head in the sand and ignore the phone calls and letters from your lender. It's certainly unpleasant to deal with people whose job it is to shut you down, but avoiding them isn't going to make it any better. If you don't want to deal directly with the bank, engage an SBA workout expert to represent you. In order for any short sale to be successful, first and foremost, ALL the lien holders must agree to release their liens. This means not just the first lien holder, but the 2nd, 3rd, 4th etc. Why is this the case? Here's why: Because a short sale is a voluntary sale, therefore all the lien holders must agree. Contrast this with a foreclosure, which is a forced sale. In these cases, not all the lien holders need to agree. In the example above, if the 1st lien holder were to foreclose, all the remaining lien holders would get wiped out, which means all the remaining lien holders lose their lien on the property. Answer: Yes, you were wrong. If the document that you signed says "Unlimited Personal Guarantee", you are personally liable. First and foremost, if you expect to have the loan balance reduced, the building needs to be sold (either via short sale or foreclosure). The SBA will settle 504 loans even if your business remains open (note: this is not the case with 7a loans) so the major pre-requisite for settling a 504 loan is the liquidation of the real estate that your 504 loan financed. Once the business is closed, and all the business assets are sold, it's time to think about settling your debt. In the present economy, more than ever, banks are willing to settle outstanding debt. Why? Because it costs money to sue you. It costs money to sic a collection agent on you. It costs money to collect on a personal judgment. It costs money to foreclose on you. In other words, if you come to the table, they are willing to talk. My guess is that consultants who don't have the experience with financial statement analysis and modifications prefer to steer their customers away from modifications simply because the consultant can't help them with such a request, and therefore there is no financial incentive for the consultant to recommend such a request. A good workout consultant can talk to you about your situation, and recommend the strategy that works best for you, the client, and not simply steer you towards the strategy that earns the highest fee for the consultant. Can I Sell My Business To My Friend? So really, for the vast majority of SBA borrowers, the fact that this gentleman is an attorney is of little value, especially when you consider that a settlement is largely a financial matter (that requires a strong finance background, not a legal background) and usually never reaches the point of litigation! You own a restaurant, and after years of struggles, you come to the conclusion that you simply can't afford to run the business with the current amount of debt that you owe. You've heard about the SBA offer in compromise, and that for your type of loan, the bank and the SBA require the borrower to cease operations before they will consider a reduction in principal. Once the business ceases operations, you learn that the bank and the SBA will consider settlement offers in exchange for the release of your personal guarantee. Thinking you found a loophole, you decided to form a new corporation who you will sell your business to. Since it's obvious that the bank won't let you sell your business to a corporation owned by you, the new corporation is owned by a friend or a business associate. You draw up a contract of sale, and present it to the bank, conveniently forgetting to omit the fact that the "buyer" is a friend / business associate. This kind of approach is clearly fraudulent. The sole purpose of this transaction is to create the appearance of a sale in order to induce the bank into settling your personal guarantee, and once that happens, you intend to buy or "lease" the business back from the "buyer". If the bank were aware of all the details, it's highly likely that they would not approve the sale. The process can be arduous and time consuming, and working with a professional does make a difference. Dealing with bankers and lawyers can be a daunting task, especially if you are not familiar with banking terminology and legal documentation. Banks will always steer you towards what in their best interest. It only makes sense that you should have a sounding board to make sure you are getting a fair deal. I got an email last week from a woman who had contacted me 3 years ago for help with her defaulted SBA loan. Not unlike many prospects, we had a consultation, and I never heard from her after that. Not every consultation results in a client, so I had no hard feelings that she chose not to hire me. That said, I was eager to hear what had happened since then, and in particular, who she had retained to guide her through the SBA Offer In Compromise process. Quite often, I hear from distressed borrowers who want to settle their debt. In some cases settling is possible, in some cases its not. The purpose of this article is to explain three key elements that must be present in order for a business to have a chance to settle their SBA debt. Please keep I mind that this is NOT an exhaustive list. My partner screwed me. Many people call and want to get half the loan forgiven because their 50% partner wronged them in some way. Unfortunately, in most cases guarantors are unlimited, meaning each partner is 100% personally liable for the debt. So when you tell the bank of your bad luck with your partner, the response will be "sorry to hear that, but you need to find a way to honor your obligations". It's a common scenario that we've seen a number of times. We get an email from an SBA borrower who has closed their business. While they knew that they'd be responsible for the debt since they signed a personal guaranty, they never heard anything from their lender. For this reason, the guarantor procrastinates when it comes to settling their debt in exchange for the release of their personal guaranty. Makes you feel comfortable. Don't let salesman scare you into paying their fees. While it is a serious issue, a good SBA settlement firm will be able to answer all your questions, while also being able to give you a realistic idea of what you are facing. If someone is giving you the doom and gloom scenario, ask yourself if they are looking out for you, or simple looking to make a sale. Unfortunately, no, you are still responsible for the entire balance. When it comes to SBA loan settlements, your situation absolutely plays a factor, but I thought it would be helpful to make everyone aware that while an OIC is always judged based on your personal financial circumstances, who is evaluating the offer is a factor can be as big a factor as what it says on your personal financial statement. For that reason, it's extremely important for you to submit an OIC that is as close to perfect as possible. About once a week, I get a call from someone who heard about a really great strategy that is guaranteed to strip their assets of debt so they can continue to operate the business, all while getting the bank and the SBA to go away and leave them alone. While this strategy is not a new idea, the question that always comes up is: is this legal? How do lenders feel about this strategy? Are you comfortable having a bankruptcy on your credit report? Don't do a short sale on your building unless it includes a release of your personal guarantee. A successful short sale typically does not mean you are off the hook for the deficiency (ie the money you still owe to the bank), so a settlement (OIC) will be needed. The OIC cannot be done in conjunction with the sale of the real estate. The settlement comes only after all business assets have been liquidated. Note: 99% of my business is SBA settlements. I live it and breath it all day, every day. Like most issues at a bank, the decision to settle debt is a business decision. Lenders tend to ask one question when evaluating an offer: what scenario will result in the best possible recovery for the bank? If you offer $10,000 in cash, and their alternative is trying to garnish your wages for 20 years, then they take the settlement. If you offer $10,000 in cash, and they can sell your home and clear $50,000, then they will foreclose. If a borrower understands that concept, it will make the settlement process a whole lot easier. Buy It Now & Get Free Bonus. Again, the SBA concurs with this stance). Generally speaking, the SBA does encourage lenders to explore all workout options before resorting to foreclosure. If you can pay over time or refinance, you can avoid foreclosure. Of course, both of those options require you to have income. For many borrowers, the business was their sole source of income, so now that the business is defunct they have no ability to make payments (Strike One). What can an SBA workout specialist do for me that I can't do for myself? Question: If I file for personal bankruptcy, can the bank still legally come after my business and shut me down? When I heard his story, I immediately thought of all the people who call me and want to know if selling their business to a friend/family member/business associate/themselves is the right way to settle their SBA debt. The main goal of the bank and the SBA is to recover the money that they lent to you. Their philosophy is simple: you borrowed the money, and are legally responsible for repaying the debt regardless of how much you lost money on the business. While it tempting to rationalize that since you lost money, the bank should be willing to share equally in the losses, it's just not how banks view it. If you don't have the ability to repay the debt in full, then yes, a settlement of your SBA debt may be possible. But just because you lost $50K on the business doesn't mean that the bank/SBA will will automatically forgiven a portion of your loan. Even if you strongly believe that the bank/SBA should participate in the losses, you're better off not expressing this to your lender. Get out of student loan garnishment and default. Help with student loan consolidation. Payment plans as low as $0 depending on what you qualify for. It seems to be a fact of life that when people don't know what to do, they do nothing. The workout and settlement of SBA debt appears to be no exception. I have a client who purchased a building via the SBA 504 program. The economy killed his construction business, and he eventually did a short sale on his commercial building and lost a huge sum of money in the process. Following the sale, he ended up owing over $1Million to the SBA. Such an event would send even the most level headed entrepreneur into a tailspin, so it was not surprising to hear that my client took a "wait and see" approach when it came to dealing with the massive shortfall on the SBA debt.
Finally, since community banks negotiate less often, then are hesitant to engage in meaningful discussions about why a settlement offer has been deemed to be insufficient. Since they are afraid to say the wrong thing, they instead say nothing. Without understanding why they feel an offer is not acceptable in the first place, it's really difficult to revise the offer in a meaningful way and reach a mutually agreeable settlement. So 2 weeks after the initial offer, we submitted a new offer to the US Treasury for slightly more money. That offer was also declined, and this time, they told me that they would not consider settling for less than full principal balance. That was the final nail in the settlements coffin. We are now waiting to hear from the collection companies who the Treasury refers files out to, although we have little confidence that dealing with the collection company will be any more productive. Keep Your Home Free of Liens - Even if you didn't pledge your home originally, once a lender obtains a judgment against you, they can seek to have a judgment lien place on the home. Again, this would mean that the lien would need to be satisfied if you ever try to sell your home. Does the business have a satisfactory repayment history prior to the current situation? The second point he tried to argue was that since he would be borrowing against his 401k to fund the settlement, that it was technically a liability, not an asset. SBA Loan Default: What Does The SBA Look For In A Settlement Offer? My Blog is now an E-book! DEFINITION of 'Loan Credit Default Swap (LCDS)' A type of credit derivative in which the credit exposure of an underlying loan is swapped between two parties. A loan Therefore, when your business closes, liquidation of the business assets is performed in order for the bank to recover as much cash as possible. Since the bank had a lien on the assets, theses funds are NOT considered to be part of the OIC. The OIC, you see, includes the amounts of cash that you are offering above and beyond the cash obtained via business asset liquidation. Tax Refund Offset - If you default on an SBA loan, the US Treasury Dept can enroll you in the Treasury Offset Program. Any tax refund you are entitled to receive in the future can be seized and applied to your debt. online (etc) Many people won't qualify for BK because of their income or assets. Today's article is a story about how one of my client's was able to successfully settle his debt and get his personal guarantee released. Steve (name changed to protect my client's privacy) had a business that had failed, but was left with a couple of loans for a few hundred thousand. Discusses lessons learned.
SBA Loan Default Blog by Jason Milleisen, Founder of Distressed Loan Advisors. Home - About Us - Services - FAQ - Contact Us - Testimonials / Results My Response: The SBA clearly wants to know about any and all assets, regardless of whether they can be levied by creditors or not. It was clear to me that in this situation, it would be disastrous to omit his 401k from the PFS since his paystub (which was required as part of the OIC) showed that he was making monthly contributions. Once a lender discovers that you've omitted your 401k from your PFS, they will question whether you are negotiating in good faith. Since the SBA does ask the bank if you've been cooperative, your attempt to omit a major asset could hurt your chances for a settlement approval. Dealing directly with the SBA, the Treasury, or a collection company can be hard because they don't give you access to decision makers, so it's sometimes impossible to know why an offer was declined. Let's say your business is struggling so you list it for sale. You get lucky and find an interested buyer. You've never met the buyer before, and you are both negotiating in good faith. The SBA guaranteed 75% of the loan to my lender. That means as a guarantor, I only owe 25% of the balance, right? A banker I worked with in my early days used to tell her clients, "there are certain things I can do for you, and there are certain things I can't do." What she meant by this was that she would do everything in her power to help, but at some point she was going to restricted by the parameters of the "powers that be". The same goes for me as your SBA workout consultant. The second misconception is that an Offer In Compromise (i.e. http://serioussoundzz.ning.com/profiles/blogs/loan-fee-charged-for-direct-subsidized-and-unsubsidized-loans SBA Personal Guarantee Release: Victory! Welcome. This site will provide you with accurate information and assistance to help resolve defaulted loans or grants assigned to the Department's Default I have been helping borrowers out of sticky situations for a number of years. Perhaps over time I've become a bit desensitized to the financial devastation that most borrowers experience. I used to listen patiently as the client explained in detail how or why it all went wrong. These days, I ask the client to "cut to the chase". Why? With that said, it would seem to me that steps can be taken to alter the existing debt terms on 504 debt in such a way that it gives small businesses a fighting chance. Would it save every small business? Certainly not. Would it save some businesses, effectively saving the SBA from writing off millions and millions of dollars? I'd have to say that's true. And here is the kicker: the onus of qualifying borrowers for loan modifications doesn't fall on the SBA. Instead, it typically falls on the servicing bank, or in the case of the 540 program, the Community Development Corporation (or the CDC). In other words, all the SBA has to do is change its policies, and BOOM, borrowers will have a fighting chance. Having your personal guarantee discharged only relieves you of personal liability. In other words, they can't go after your personal assets (unless they were pledged prior to the BK) such as your home, bank accounts, or paycheck. When a personal judgment is granted against you, what's basically happened is that your bank went to court with all the loan documents that you signed and say Hey judge, Mr. The deferment is a "first line of defense" when it comes to SBA Loan Workouts, so unless your lender thinks that your problems are long term in nature, that's often the first form of relief you'll be offered. In summary, the rule of thumb is simple: When in doubt, ASK YOUR BANKER IF YOUR TRANSCATION IS ACCEPTABLE TO THE BANK, INCLUDE ALL DETAILS, AND GET THEIR ANSWER IN WRITING! If you are not fully disclosing all the details of the transaction, there is probably something wrong.
When evaluating a settlement offer, the SBA asks for a number of financial documents. The intention behind asking for all the info, aside from making you go blind on paperwork, is that the SBA wants to ensure that you truly cannot afford to repay the debt in full. What types of things will indicate that you perhaps have the ability to repay the debt in full? A high paying job, a home with lots of equity, liquid assets, or assets that could be sold to raise cash are all red flags that could result in a rejection of a settlement offer. Community banks sometimes do not even have workout officers. If there is nobody at the bank that is dedicated to working out defaulted loans, you may get stuck with a loan officer who has no experience (or interest) in figuring out how the settlement process works. So is there anything you can do? YES! Don't hide from your situation, and stay in constant communication with your bank. If the bank closes the file due to your lack of action, it often ends up at Treasury aka where loan settlements go to die. Repay the full balance over 7 years. Once your file is passed from the SBA to the Treasury (or a collection company who is working for the Treasury), your window of opportunity to settle with the SBA will be closed. That is to say, I defaulted on my student loans. But it is possible to survive the life of default. You might want to follow these steps: More than once, a prospective client has asked us something to the effect of Why should I pay you to do something that I think I can do myself? The first time I was asked, I felt a little threatened. But as time goes on, I've realized that it's a perfectly legitimate question to ask. So if the background story doesn't matter, what does matter? Click here! I'll cut to the chase. The best advice I could possibly give to a client is this: BE HONEST AND TELL THE TRUTH. The Rate - While not impossible, a rate change is unlikely. The main reason is that many SBA loans are sold to investors. Since the investor agreed to buy the loan at a certain rate, an investor will rarely agree to a rate reduction. Additionally, if a lender were to use risk-based pricing, lowering the rate on a defaulted loan would be out of the question. A local Community Development Corporation (CDC) funds 40% of the project. This loan is 100% guaranteed by the SBA. If given the chance, many will simply pass your file over to the SBA or the US Treasury and let them deal with the collection of your loan. If you get a letter from a collection company, life just went from bad to worse. The second incident was not as egregious as the first, but nonetheless made me wonder how many borrowers have been through the ringer unnecessarily over the years because of bankers who don't know the SBA protocol. For this one, the client had filed for bankruptcy, but there was still a lien on the property. He contacted his banker, who told him that an OIC would be required. False. Plain old wrong. The fact is that preferred lenders have the ability to make collateral decisions on their own for 7a loans with no SBA involvement at all. The difference between when the bank was telling the client needs to happed versus what actually needs to happen is huge. When They Say "Jump", You Say.. Today, when potential clients contact me, one of the first questions they ask is: if an SBA settlement is approved, how will it impact my credit? Like almost every other question I get, my answer is It depends. Client: I bought my business, and it appears that the seller defrauded me. The business doesn't make as nearly as much as the seller claimed it would. If you are reading this blog and thinking to yourself great, you can help me settle my debt, but how do I close my store?, this is the article for you.
Can they take my tax refund? Yes. Did You Get A 60-Day Letter From SBA? Join The Club! So to answer the original question of whether the SBA forgives loans? No. Does the SBA settle loans? The answer is yes, but only when it makes business sense to do so. After a bunch of emails flying around, it was determined that the bank had failed to notify the SBA of their intention to consider a settlement offer. As a result, the file automatically was referred to Treasury (aka the black hole where settlements go to die) for servicing. Normally, I am not a squeaky wheel kind of guy. If my client is declined for a legit reason, I can live with their decision, even if I don't agree. But this one really annoyed me. My client had done everything that had been asked of him, and yet, due to the banks error he was being punished. When a client's potential settlement offer is low relative to other settlements I've negotiated for other clients, I always tell them that all we can do is make their best offer. Regardless of what the bank or SBA wants, or what it says on paper that they can afford, the bottom line is that the client needs to be fairly confident in their ability to follow through on the settlement. To agree to a settlement in order to get that temporary sign of relief can be tempting, but taking that route will only come back to bite you. Most settlement agreements, you see, contain a provision that is known as a claw back provision. In a nutshell, it says that if you default on the terms of the settlement, the bank has the right to take action against you for the FULL AMOUNT OF PRINCIPAL AND INTEREST. The economy ruined my business so you should let me go. Some people think that a settlement means that you are having a rough time so the bank simply let's you walk away because they feel bad for you. Not the case. The concept of debt forgiveness means that in exchange for payment, the lender and SBA will forgive a portion of the debt. How much they will accept depends on many factors, but the only absolute is that you will not be released unless you can offer a material payment. Benefits of! So what does this have to do with and SBA Offer In Compromise? Since you have a relationship with these parties, it would be questionable whether both parties are acting solely in their own best interest. If you make a sale with the intention of buying or leasing the business back at a later date (and do so in order to submit an Offer In Compromise), then you are running the risk of being accused of fraud if your scheme is uncovered. Creating a new company, and selling the business/business assets to that entity while representing that the new company is an unrelated party. This is clearly fraudulent. In finance, default is failure to meet the legal obligations (or conditions) of a loan, for example when a home buyer fails to make a mortgage payment, or when a Yes, but it's rare.
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