The SBA Has A New Excuse Not To Settle
Because we work with defaulted SBA guaranteed loans every day, filing dozens of Offers in Compromise, we have a broad base of experience in dealing with their issues and guidelines. I see new trends before others as we initiate so many Offers in Compromise. The latest silliness from the SBA is their most recent rejection citing “future potential earning power” as the reason for rejection!
Apparently, the SBA has a crystal ball that lets them know that a person will escape the downward trend of this economy and will recover and experience greater earning capacity making them capable of paying off their loans in the future. Impressive. I would love to have a look at that crystal ball myself.
SBA guaranteed loans are based on small business applications and a defaulted loan payback must result in a liquidation of the business assets (a requirement prior to making an Offer in Compromise) and must of the loans I see are for hundreds of thousands of dollars. Even if the business owner does land a job, does the SBA really believe they will be able to better service the defaulted loan with a weekly paycheck? As if there will be an abundance of revenue left over each month to throw thousands at the payback requirements necessary to support a large loan or even small loan payback? As if there are jobs available at all?
What happened to the SBA benchmark for evaluating Offers in Compromise which was “the net liquidated value of the borrower at the time of application”? Is that gone? Forgotten?
So, the bank and or the SBA simply waits for the borrower to recover, getting no payments at all until that glorious day when the borrower lands a job and can then begin the payback? Is this really how desperate the SBA has become to find reasons to refuse an Offer in Compromise? Is this truly a standard they will be exploiting, a reason to reject a perfectly viable Offer in Compromise to settle?
Fortunately, I hear this only occasionally. Unfortunately, it’s becoming more common. We always figure out the best path around such absurdities, but it is creative. Be careful when you begin to hear this because it is a problem. It prevents reemergence and a second try which are the presumed goals and objectives of the Offer in Compromise program. It is an unworkable standard as there are no benchmarks. It is pure fantasy on the part of the SBA, yet apparently, the SBA and its representative banks are indulging in exactly that – fantasy – as a reason ro reject an OIC.
My lender has a 3rd position on my personal residence. In chapter 5 (Liquidation and Litigation), it states that lenders should explore the possibility of a compromise before commencing foreclosure against a personal residence. It further states that any settlement must bear a reasonable relationship to the present value of the estimated value of the recovery available through foreclosure. I my case, the 3rd position is underwater has no present value and foreclosing would result in unrecoverable costs. Obviously, I want to get out from under the 3rd mortgage. Is an Offer of Compromise a reasonable way to do this and since there is no value and will be no value for the years to come, will they allow the lender to release the lien?
If CIT small business lender goes under, do you have any thoughts what will happen to people who are in the “offer in compromise” negotiations with them right now. We have not come to terms with them yet.
Post Katrina a relative of mine took a $170,000 SBA loan. Business which is relied on tourism has not returned. Business is struggling. The owner doesn’t want to claim bankruptcy (business is a corporation). She has had a breakdown due to the stress. Could anything be done to help rid of this loan without filing for bankruptcy. The business isn’t making any money. She hasn’t had a check since Katrina? What can she do????
There is much that can be done, w need to evaluate your position and details and then cn proscribe a strategy that will resolve your issues.Call Norm at 413-584-2581 he will arrange a no -obligation teleconference. don
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regards khhudf
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Your Offer in Compromise will continue and will probably survive the bank IF the bank submitted it, if not there may be problems…communciate with them and find out.