sba sop updates presentation 2016-03-04

SOP 50 57 2- 7(a) Loan Servicing and Liquidation Update Effective December 1, 2015

Friday, March 4, 2016

Lerch, Early & Brewer

www.lerchearly.com

© Lerch, Early & Brewer, Chtd. 2014 www.lerchearly.com

Chapter 1

Purpose

Applies to 7(a) Loans Only Guide for Fully Disbursed

Loans Credit Lines After First

Disbursement


Chapter 1

Performance Standards

Prudent Servicing Prudent Liquidation- New

Standard


Chapter 2

Revisions to Definitions Appraisal – Clarifies that lenders should refer to

appraisal requirements in servicing and liquidation which were in effect at the time the loan was approved.

Early Defaulta) Within 18 months from initial disbursement (including lines of credit)b) Within 18 months of final disbursement if final disbursement occurred more than 6 months from initial disbursement, unless borrower cured the default and made scheduled loan payments for 12 months (no longer consecutive) following the 18 month period.


Chapter 2

New Definitions

Prudent Liquidation Prudent Servicing SBA Loan Center


Chapter 2

Prudent Liquidation Lenders must liquidate and conduct debt collection litigation

for 7(a) loans in their portfolio no less diligently than for their non-SBA portfolio, and in a prompt, cost-effective and commercially reasonable manner, consistent with prudent lending standards, and in accordance with Loan Program Requirements and with any SBA approval of either a liquidation or litigation plan or any amendment of such a plan.

Lenders and CDCs that do not maintain a non-SBA loan portfolio must adhere to the same prudent lending standards followed by commercial lenders that liquidate loans without a government guarantee. They must also operate in accordance with Loan Program Requirements and with any SBA approval of either a liquidation or litigation plan or any amendment of such a plan. (13 C.F.R. § 120.535(b)).


Chapter 2

Prudent Liquidation CONTINUED

A Lender submits a Wrap-Up Report acceptable to SBA on a SBA loan no later than either 24 months from SBA guaranty purchase date or 24 months after the effective date of this SOP for loans where SBA has previously honored the guaranty and lenders are actively liquidating, whichever is longer, unless a written extension is granted by SBA from the applicable timeframe based on extenuating circumstances. (See Chapter 23, Paragraph J, for more information on Extensions to the Prudent Liquidation Deadline”).”


Chapter 2

Prudent Servicing

Lenders must service 7(a) loans in their portfolio no lessdiligently than their non-SBA portfolio, and in acommercially reasonable manner, consistent with prudentlending standards, and in accordance with Loan ProgramRequirements. Those lenders that do not maintain a non-

SBAloan portfolio must adhere to the same prudent lendingstandards for loan servicing followed by commercial

lenderson loans without a guarantee.


Chapter 2

SBA Loan Centers LGPC - for loans not fully disbursement or undisbursed

lines of credit CLSC West

a) Regions 5,6,7,8,9,10 b) Loans fully disbursed

“NGPC”- Herndona) All CLP/PLP loans approved before 1/1/14 in liquidationb) All CLP/PLP loans >$350,000 approved after 1/1/14c) All EWCP 7(a) loans


Chapter 2

SBA Loan Centers CONTINUED

CLSC East - Little Rocka) Regions 1,2,3,4,6 (includes Mid-Atlantic region)b) Loan Fully Disbursedc) SLA, Express, Pilot Loan Programs

i) Servicingii) Liquidation

f) 7(a) Small Loansi) Servicingii) Liquidation (loans approved after 1/1/14)

d) Express - (servicing and liquidation)e) Pilot Loans (including Community Advantage) - (servicing and liquidation)f) ARC loans

i) Servicingii) Liquidation


Chapter 2

Loan Center Contact Information:General inquiries: [email protected] Loans sold on the secondary market: [email protected] Loans not sold on the Secondary market: [email protected] Expense Reimbursement: [email protected] Wrap-up Reports: [email protected]


Chapter 2

New Language – Wrap-up Report Wrap-up Report refers to the documentation,

whether or not it is titled “Wrap-up Report,” that a lender must provide in electronic format to the SBA Loan Center for review and approval by SBA. It includes the information outlined in the template accessible from http://www.sba.gov/for-lenders.


Chapter 3Lender Responsibility and Authority –Unilateral Actions

Highlights the following revisions: Refer to Servicing and Liquidation Matrix

a) When to Notifyb) When to Seek Approval- written consent

Compromise includes actions that legally extinguish the deficiency of a lien, ie, deed in lieu of foreclosure – need written approval

Increase or decrease of loan amount (NEW)a) Non-delegated Lenders – submit request to servicing centerb) PLP Lenders – seek approval via E-TRAN


Chapter 3Lender Responsibility and Authority –Unilateral Actions CONTINUED

Added Remindersa) Actions requiring secondary market consent (note modifications)b) LOCs- after initial disbursement, seek prior approval (when required) through appropriate servicing centersc) Electronically store information should be preserved in its originally created format along with related metadata until written notice by SBA counsel that retention is no longer required


Report to Credit Agencies -- Report Borrower to Commercial Credit Reporting Agency

i) See Appendix 3 of “Guide to Federal Credit Bureau Program”ii) When Loan is madeiii) Routine Servicingiv) Liquidationv) Charge off Activities

Chapter 3Lender Responsibility and Authority –Unilateral Actions CONTINUED


Chapter 3Lender Responsibility and Authority – Unilateral Actions CONTINUED

Reporting Requirementsa) Loans purchased from secondary market after 12/1/15, Loan Center to receive written status report within 15 business days after receiving notice that SBA purchased its guaranty from the secondary market b) Loans already purchased by SBA (either from secondary market or lender) – provide written status report every 6 months starting with 6 months from the date of guaranty purchase, or the effective date of this SOP, whichever is earlier.


Chapter 3Lender Responsibility and Authority – Unilateral Actions CONTINUED

Reporting Requirements CONTINUEDc) Status Report Includes:

i) Borrower Statusii) Obligorsiii) Collateraliv) REO and acquired propertiesv) Workout/restructure negotiationsvi) Recoveries and Expensesvii) Reasons preventing resolution of loanviii) Timeline for completion

d) Failure to Comply -- Referral to OCRM


Chapter 3

Wrap-up Report A Wrap-up Report must be prepared and submitted in electronic format to the appropriate SBA Loan Center for review and approval within 30 calendar days after Prudent Liquidation is complete or upon receipt of a request from SBA, whichever occurs first. Once approved by SBA, the remaining loan balance, if any, will be charged-off by SBA and any loan that is legally collectible by SBA will be referred to Treasury for further collection efforts after assignment of the appropriate Loan Documents by lender to SBA.


Chapter 3

Wrap-up Report CONTINUED

Additionally, lenders must comply with SBA’s Prudent Liquidation Deadline definition in Chapter 2 if the Wrap-Up Report has not been previously submitted. That definition requires Lenders to prepare and submit an acceptable Wrap-up Report in an electronic format to the appropriate SBA Loan Center no later than either 24 months after purchase by SBA or 24 months after the effective date of this SOP, whichever is later, unless an extension is approved in writing by the SBA prior to the expiration of the applicable 24 month period. (See Chapter 26, Paragraph B, and Chapter 23, Paragraph E for more information on the Deadline for Lender Resolution, and Paragraph J for more information on the Extension to the Prudent Liquidation Deadline). Enforcement from OCRM: May take action on the basis of lender’s servicing and liquidation actions or inactions.


Chapter 4

Loan Payment Administration Reminder – Additional principal payments do

not advance the next payment date.


Chapter 5

Environmental Risk Management Clarification and Additional Reference Materals

Added Other Relevant Facts or Expenses in making

determinations Receivership Proceedings, Added language,

non routine litigation must receive SBA prior written approval – Include a cost/benefit analysis


Chapter 6

Servicing Requests Clarification – Document adequate

consideration for modification, i.e., obtaining updated financials to document ability to repay if modified

Attach a copy of the Matrix in effect when servicing action is made in your loan file


Chapter 7

Modification of Note Clarification – Make sure to refer to SOP 50 10

in effect at the time the loan was approved when modifying note


Chapter 8

Modification of Collateral Requirements Clarification – Make sure to refer to SOP 50 10

in effect at the time the loan was approved when modifying note

In releasing a Borrower/Guarantor – clarification that in a sale, if there are sufficient funds to payoff the loan, encourage payoff


Chapter 9

Insurance Unavailability of Flood Insurance

a) If lapsed insurance because area was dropped out of NFIP - add language – “and no private insurance is available,” document file accordinglyb) Increases of loans, renewals and extensions not available for acquisition or construction unless the community participates in NFIP.


Chapter 10

Modification of Covenants Clarification – Use Prudent Servicing actions


Chapter 11

Assumption, Assignment or Sale of Loan Reminder – See Chapter 8 regarding release of

guarantor SBA may require additional documentation than

listed


Chapter 12

Deferments Loans not sold on secondary market – Use

Prudent Servicing practices


Chapter 17

Real Property Collateral Liquidation Deed in Lieu – Make sure you don’t extinguish

debt unless compliance with Chapter 20


Chapter 20

Offer and Compromise Advise obligors of possible tax consequences

of compromise If in bankruptcy, must obtain bankruptcy court

approval of compromise See Chapter 26 – Referral to Treasury Compromise Terms

a) Repayment in 3 years or less if in installmentsb) Reminder to obtain SBA prior written approval


Chapter 22

Expenses and Recoveries Lenders are reimbursed for expenses

a) At the time of submission of Guaranty Repurchaseb) Wrap-up Reportc) Can no longer periodically recover expenses


Chapter 23

Loan Guaranty Purchase Requests Clarification – If event under Chapter 24 occurs

(denial of liability) – No repurchase Deadline for Resolution – 24 months from

submissionA) Proof of evidence in writing of resumption of payment including:

i) Gross Outstanding Principal and Interest Amounts Outstanding

ii) Payment Amountiii) Payment Frequencyiv) Interest Ratev) Maturity

B) Payment in Full


Chapter 23

Loan Guaranty Purchase Requests CONTINUED

Extensions to Prudent Liquidation Deadlinea) Case by Case Basisb) Written Requestc) SBA Approvald) If approved, new deadline is established

i) Continue 6 month reports until resolutionii) Continue to comply with Prudent

Liquidation Consequences

a) Purchase Bank Loanb) Referral to OCRMc) Could lose ability to sell on secondary marketd) Suspension of delegated authority


Chapter 23

Loan Guaranty Purchase Requests CONTINUED

Annual Service Fee Collectiona) For loans approved before December 8, 2004, SBA will collect an Annual Service Fee through the date of guaranty purchase in the amount in place at the time the loan was approved.b) For loans approved on or after December 8, 2004:

i) If the lender submits a Wrap-up Report acceptable to SBA concurrently with its guaranty purchase request, SBA will collect an Annual Service Fee in the amount in place at the time the loan was approved for a maximum of 120 calendar days from the last interest paid to date and “0” percent thereafter.

ii) If the lender does not submit a Wrap-Up Report acceptable to SBA concurrently with its guaranty purchase request, SBA will collect an Annual Service Fee in the amount in place at the time the loan was approved through the date the Lender submits demand of the guaranty purchase and a complete guaranty purchase package acceptable to SBA.


Chapter 24

Denial of Liability on 7(a) GuarantyWhen SBA May Deny LiabilityPursuant to 13 C.F.R. § 120.524(a), SBA is released from liability on its guaranty of a 7(a) Loan and may, in its sole discretion, refuse to honor a guaranty purchase request in full or in part, or recover all or part of the funds already paid in connection with a guaranty purchase, whether they were paid directly to the lender or to the secondary market investor, if the lender: Failed to comply materially with a Loan Program RequirementFailed to make, close, service or liquidate the loan in a prudent mannerPlaced SBA at risk through improper action or inaction Failed to disclose a material fact to SBA in a timely mannerMisrepresented a material fact to SBA regarding the loan Sent a written request to SBA to terminate the guarantee


Chapter 24

Denial of Liability on 7(a) Guaranty CONTINUED

When SBA May Deny LiabilityFailed to pay the guarantee fee within the period required under SBA rules and regulations Failed to request that SBA purchase a guarantee within 180 days after maturity of the loan. However, if the lender is conducting liquidation or debt collection litigation in connection with a loan that has matured, SBA will be released from its guarantee only if the lender fails to request that SBA purchase the guarantee within 180 days after the completion of the liquidation or debt collection litigationFailed to use required SBA forms or exact electronic copiesThe borrower has paid the loan in full

Use of Suspended/Deferred AgentMust review SAM list (50 10)SBA website list of Agents subjected to enforcement action


Chapter 26Lender Wrap-up andSBA Charge-Off Procedures Once Prudent Liquidation is completed and there is little or no

likelihood of timely, prudent and cost effective recovery, lender must submit Wrap-up Reporta) Electronic Formatb) Once Approved by SBA

i) Loan is charged offii) Referred to Treasury for collection

Wrap-Up Reporta) Within 30 days after all Prudent Liquidation activities are completeb) Lenders also must comply with Prudent Liquidation Deadlinec) Consequences

i) Referral to OCRMii) Repurchase of Loan by Lender

Contents


Chapter 26Lender Wrap-up andSBA Charge-Off Procedures CONTINUED

Report template on SBA’s website, which can be found at the following websites:a) For loans serviced at the National Guaranty Purchase Center: https://www.sba.gov/content/sba-charge-procedures-summary-suggested-wrap-report

b) For loans serviced at the Fresno or Little Rock Commercial Loan Servicing Centers: https://www.sba.gov/sites/default/files/files/SBA_Charge_Off_TabsWrap-Up_Report_08052015v2.pdf

IRS Notification of Charge-Offa) SBA Denver Finance Office provides 1099-C to Borrowerb) Lenders continue to report to Credit Bureaus until final Wrap-up Report is submitted to SBA

https://www.sba.gov/content/sba-charge-procedures-summary-suggested-wrap-report

https://www.sba.gov/content/sba-charge-procedures-summary-suggested-wrap-report

https://www.sba.gov/sites/default/files/files/SBA_Charge_Off_TabsWrap-Up_Report_08052015v2.pdf

https://www.sba.gov/sites/default/files/files/SBA_Charge_Off_TabsWrap-Up_Report_08052015v2.pdf


About the PresentersFor more information, visit www.lerchearly.com.

Arnold D. Spevack is a commercial transactions attorney who represents individuals, businesses, lenders and borrowers in financings, closings, negotiations and in the courts resolving disputes involving the purchase and sale of real property. For more information, contact Arnie at (301) 657-0749 or [email protected].

Alison W. Rind is a commercial lending attorney who represents commercial lenders in loan transactions and other commercial matters, including participants in SBA and other government guaranteed lending programs. For more information about the effect of DC repealing the transfer tax, contact Alison at [email protected] or (301) 657-0750.

sba sop updates presentation 2016-03-04

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