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February 27, 2012
Alison RindArnold SpevackJeffrey Sherman
Lerch, Early & Brewer, Chtd.
www.lerchearly.com
The New SBA SOP 50 57 7(a) Loan Servicing & Liquidation
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Introduction Review of Ch. 1-26 Questions
Overview
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Introduction
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Replaces SOP 50 50 (Servicing) and 50 51 (Liquidation)
Applies to 7(a) Loans only Effective March 1, 2013 Leaves More to Lender’s
Judgment Matrix Needs Updating
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Ch. 1: Performance Standards and Exceptions to Policy Lender must service in
diligent, conflict of interest and preference free, commercially reasonable manner
Use own procedures so long as not inconsistent with SOP
If SOP contains “must”, then any deviation must be treated as exception to policy
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Ch. 2: Definitions
Definitions specific to this SOP
Terms Capitalized throughout SOP
New Defined Terms Added
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Defined Terms
AppraisalComputer Tracking System
Loan Action Record
Loan FileMaterial Loss
Seasoned Loan
RepairService Request
Site Visit Report (comprehensive)
Supporting Documents
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Ch. 3: Lender’s Responsibility and Authority Incorporates List of Activities
simliar to matrix Sometimes contradicts
Matrix – follow SOP 50 57 All actions to be
documented in Loan File or Computer Tracking System
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Ch. 4: Loan Payment Administration
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Principal Interest Expens
es
If Loan in liquidation, all payments applied:
Unless payments are under
workout or court ordered agreement (new)
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Ch. 5: Environmental Risk Management
Environmental Investigation Process for loans in liquidation
Remedial Actions by Lender Taking Title to Contaminated
Property
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Ch. 6: Servicing Requests
Must Enter All Actions Loan File or Computer
Tracking System Obtain supporting
documentation 2 yrs federal tax returns
now required How to obtain SBA approval11
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Ch. 7: Modification of Note
Obtain secondary market approval if loan is sold on the secondary market
Alternatives if approval not granted
Extensions of Maturity Date
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Ch. 8: Modification of Collateral Requirements
Guidance for: Subordination Substitution Release of Lien Release of Borrower or
Guarantor Release of Condemnation
Proceeds13
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Ch. 9: Insurance Coverage
Review Flood Coverage for every service request
Responsibility for Maintaining Insurance
Forced Placed Insurance Release of Proceeds Escrow Account
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Ch. 10: Modification of Management Covenants
Any modifications should be consistent with servicing goals
Compensation, Dividends, Fixed Assets – Seasoned Loans
Standby Agreements No modification if part of equity
injection unless permitted by SOP 50 10
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Ch. 11: Assumption/Assignment or Sale of Loan New Requirement Add due on death or sale
(prohibits future assumptions)
Unilateral Authority SBA must approve if Borrower or
Guarantor released No installment sales
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Ch. 12: Deferments
Temporary Solution to Temporary Problem
One time 3 month deferment if loan sold on secondary market
Up to 6 Consecutive Months- Loan not sold on secondary market
Possible additional deferments if properly documented
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Ch. 13: Delinquent Secured Senior Loans
Guidance for Strategies when other senior lien is in place
Protective Bids No Bids Less than 10% liquidation
value18
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Ch. 15: Site Visits
Follow Procedures (very specific)
Required unless loan is unsecured or aggregate recoverable value of personal property collateral
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Ch. 16: Workouts
New Guidance Provided If not in place in reasonable time
(i.e., 60 days), move forward with enforcement
Consideration to be provided Options Required Provisions SBA approval only if compromise or
other action taken requiring SBA approval
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Ch. 17: Real Property Liquidation
General Requirements Receiverships Only in exceptional
circumstances Litigation plan needed
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Ch. 18: Personal Property Liquidation
Guidelines Provided Private Sales vs Public Sales Timeframe Abandonment
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Ch. 14: Classifying Loans in Liquidation
Not mandatory “should” language included
Demand letters Application of payment
requirements for loans in liquidation
Liquidation Plans Removal from Liquidation
Status
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Ch. 19: Acquired Collateral
Ownership Responsibilities Expenses Leases (generally not
allowed)
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Ch. 20: Offer in Compromise
Multiple obligors Going Concern Review of Offer Payment Terms
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Ch. 21: Litigation
Litigation Plans Approval of Attorney’s Fees Bankruptcy Proceedings
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Ch. 22: Expenses and Recovery
Expenses in excess of $5,000 Contents of Request
Packages
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Ch. 23: Loan Guaranty Purchase Request
Interest Rate and Payment of Interest
Requirements 10 Tab System Practice Tips
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Ch. 24: Denial of Liability on 7(a) Guaranty
Repairs and Denials Examples Eligibility Early Default IRS Verifications Collateral Cash Injection
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Ch. 25: Inspector General Referrals
Duty to Report Examples Fraud in application or
closing Misuse of proceeds Lender misconduct SBA employee misconduct
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Ch. 26: Charge Off and Wrap Up Procedures
When appropriate Wrap up report Treasury Referral Post Referral Servicing by
Treasury Notifications required
Bankruptcy or litigation31
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Questions
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Speakers
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Alison Rind is an SBA lending attorney at Lerch, Early & Brewer who represents commercial lenders in loan transactions and other commercial matters. These include participants in SBA and other government-guaranteed lending programs.
(301) [email protected]
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Speakers
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Arnie Spevack is a commercial lending attorney at Lerch, Early & Brewer who represents businesses, lenders and borrowers in financings, closings, negotiations and in the courts.
(301) [email protected]
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Speakers
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Jeff Sherman is a creditors' rights and bankruptcy attorney at Lerch, Early & Brewer who advocates for creditors and debtors of all types, trustees, committees and third parties affected by bankruptcy proceedings, including related bankruptcy and non-bankruptcy litigation.
(301) [email protected]
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For more information
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Lerch, Early & Brewer, Chtd.3 Bethesda Metro Center, Suite 460
Bethesda, MD 20814(301) 986-1300
www.lerchearly.com
Thank you for your participation