The 2 year offer in compromise

Over 2 years to settle an offer in compromise… The longest completion time I have ever experienced while working at Second Wind Consultants.  The loan was for $585,000 and was one of the first workouts that was ever assigned solely to me.  Little did I know that despite my consistent efforts, that the acceptance would take what seemed like a lifetime.

In the end the settlement for a complete release was $21,000, a mere 3.6% of the outstanding balance… Another huge victory for us and our clients

However, despite the success, there were some significant lessons learned.  The first being that some workouts take a significant amount of time.  Our average workouts take between 8-12 months, some as quick as 3-6 months.  Our clients are obviously extremely anxious to settle their outstanding personal guaranty and each additional day seems like forever to them. Understandably so, seeing as how their financial futures, their real estate, and their business may be at stake.

What I learned from this case was that in order to receive the highest amount of debt reduction, we had to wait out the bank.  We had calculated the forced collection value of our client and were offering that amount to the bank and the SBA for a full release.  Despite my incessant calling to both the bank and the SBA once the offer was submitted, the file did not seem to progress any quicker.  We had to ultimately sit back and allow the bank to realize that there were no further funds for them to collect.

Some bankers are better at this than others.  Some see the true arithmetic and can conclude an offer in compromise in just a few months.  Other are more emotional or are held to extremely high standards from within their bank to uphold certain percentages of return, despite a guarantors financial situation.  In these cases we use what we call the dust strategy.  We simply wait and call the banks bluff.  We have assured that as many of our clients assets as possible have been secured from collection, and we wait for the bank to face reality.

In this case it took just over a year for the bank to realize that our offer was above and beyond what they were able to collect.  After 13 months of not collecting a single penny from our clients, an offer of $21,000 cash all of a sudden seemed much more attractive to the bank.

Luckily our client trusted our experience and stuck with us, and because he did he received a 96.4% reduction on his personal guaranty.  Waiting was a difficult pill for him to swallow, but in reality what we were doing was giving the bank and the SBA the time necessary for them to swallow a very big pill of over $550,000 in debt forgiven.

Lesson learned: while most workouts will only take 6-12 months, some will take more, and the results are worth waiting for.  If you come across a banker who understands the value of the personal guaranty in question, then you will have no problem and get to the finish line quickly.  However, you may come across a banker that has barriers he must face before he can truly face reality… In this case the best strategy is to protect yourself and wait them out.