A tough one: No mortgage on home and with a defaulted SBA debt in workout…what happens?

I call it the cruel punishment for having worked hard and done well.

I, unfortunately, see this every now and then: A business that has been ruined by the down economy unable to continue and pay its debts, a business that for years has done well and allowed the business owner to pay off his mortgage, his presumed reward for hard work and success. Now he must confront his defaulted SBA guaranteed loan, as he does not have the business to support the debt service, and his house is vulnerable to attack. He cannot refinance it, cannot qualify, and is ready to retire, too old to work meaningfully in this very difficult economy. Wanting to enjoy retirement and the few dollars he has saved but that has all changed. He is confronting disaster.

What can we do to help this man?

The rules of the game, say, the home must be liquidated to pay off the defaulted loan.

The question is, will the bank and the SBA understand the circumstances and construct a payback plan that the man can afford and allow him to remain in the home indefinitely? The understanding is that eventually the home will be sold and the debt paid off, but still allowing the man to live out his days in his home, without a lien attached to it.

The answer is yes this can be done, with difficulty.

The tougher question is, will the SBA accept a short payoff, severely discounted, as a best effort to pay off a portion of the loan and then allow the man to remain in control of the home with equity yet not subject to liquidation and with a release of the debt?

This is new ground. This is asking the bank and the SBA for some compassion, accepting a short payoff, acknowledging there is equity, yet an inability to pay, and allowing a short payoff while keeping the home with equity.

We are working on this exact situation now. I cannot yet predict the results although I can say I have had many situations in which compassion, understanding and cooperation for specific living circumstances have been universally denied.

Second Wind lives, practices and believes in our mission, that there is a workout for every defaulted debt, and this issue presents a real challenge. We will report back our success.

The question is, will compassion and understanding be included in the workout evaluation? I hope so. We will see.