SBA SOP Updates Presentation 2016-03-04

SOP50 57 2- 7(a) Loan
Servicing and
Liquidation UpdateEffective
December1, 2015
Friday, March 4, 2016
Lerch, Early & Brewer
www.lerchearly.com

© Lerch, Early & Brewer, Chtd. 2014 www.lerchearly.com
Chapte r 1
Purpose
 Applies to 7(a) Loans Only
 Guide for Fully Disbursed Loans
 Credit Lines After First
Disbursement

Chapte r 1
Performance Standards
 Prudent Servicing
 Prudent Liquidation- New
Standard

Chapte r 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 Default
a) 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.

Chapte r 2
New Definitions
 Prudent Liquidation
 Prudent Servicing
 SBA Loan Center

Chapte r 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)).

Chapte r 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”).”

Chapte r 2
Prudent Servicing
Lenders must service 7(a) loans in their portfolio no
less
diligently than their non-SBA portfolio, and in a
commercially reasonable manner, consistent with
prudent
lending standards, and in accordance with Loan
Program
Requirements. Those lenders that do not maintain a
non-SBA
loan portfolio must adhere to the same prudent
lending
standards for loan servicing followed by commercial
lenders

Chapte r 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”- Herndon
a) All CLP/PLP loans approved before 1/1/14 in liquidation
b) All CLP/PLP loans >$350,000 approved after 1/1/14
c) All EWCP 7(a) loans

Chapte r 2
SBA Loan Centers CONTINUED
 CLSC East - Little Rock
a) Regions 1,2,3,4,6 (includes Mid-Atlantic region)
b) Loan Fully Disbursed
c) SLA, Express, Pilot Loan Programs
i) Servicing
ii) Liquidation
f) 7(a) Small Loans
i) Servicing
ii) 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) Servicing
ii) Liquidation

Chapte r 2
Loan CenterContact Information:
General inquiries: loanresolution@sba.gov
Loans sold on the secondary market:
secondarymarketliq@sba.gov
Loans not sold on the Secondary market:
sbapurchase@sba.gov
Expense Reimbursement: SBACPC@sba.gov
Wrap-up Reports: SBAChargeoff@sba.gov

Chapte r 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.

Chapte r 3
LenderResponsibility and Authority –
Unilateral Actions
Highlights the following revisions:
 Refer to Servicing and Liquidation Matrix
a) When to Notify
b) 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 center
b) PLP Lenders – seek approval via E-TRAN

Chapte r 3
Unilateral Actions CONTINUED
 Added Reminders
a) Actions requiring secondary market consent (note
modifications)
b) LOCs- after initial disbursement, seek prior
approval (when required) through appropriate
servicing centers
c) 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 made
iii) Routine Servicing
iv) Liquidation
v) Charge off Activities
Chapte r 3

Chapte r 3
 Reporting Requirements
a) 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.

Chapte r 3
 Reporting Requirements CONTINUED
c) Status Report Includes:
i) Borrower Status
ii) Obligors
iii) Collateral
iv) REO and acquired properties
v) Workout/restructure negotiations
vi) Recoveries and Expenses
vii) Reasons preventing resolution of loan
viii) Timeline for completion
d) Failure to Comply -- Referral to OCRM

Chapte r 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.

Chapte r 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.

Chapte r 4
Loan Payment Administration
 Reminder – Additional principal payments do not
advance the next payment date.

Chapte r 5
Environmental RiskManagement
 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

Chapte r 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

Chapte r 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

Chapte r 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

Chapte r 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 accordingly
b) Increases of loans, renewals and extensions not
available for acquisition or construction unless the
community participates in NFIP.

Chapte r 1 0
Modification of Covenants
 Clarification – Use Prudent Servicing actions

Chapte r 1 1
Assumption, Assignment orSale of Loan
 Reminder – See Chapter 8 regarding release of
guarantor
 SBA may require additional documentation than listed

Chapte r 1 2
Deferments
 Loans not sold on secondary market – Use
Prudent Servicing practices

Chapte r 1 7
Real Property Collateral Liquidation
 Deed in Lieu – Make sure you don’t extinguish debt
unless compliance with Chapter 20

Chapte r 20
Offerand 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 installments
b) Reminder to obtain SBA prior written approval

Chapte r 22
Expenses and Recoveries
 Lenders are reimbursed for expenses
a) At the time of submission of Guaranty
Repurchase
b) Wrap-up Report
c) Can no longer periodically recover expenses

Chapte r 23
Loan Guaranty Purchase Requests
 Clarification – If event under Chapter 24 occurs (denial
of liability) – No repurchase
 Deadline for Resolution – 24 months from submission
A) Proof of evidence in writing of resumption of
payment including:
i) Gross Outstanding Principal and Interest Amounts
Outstanding
ii) Payment Amount
iii) Payment Frequency
iv) Interest Rate
v) Maturity
B) Payment in Full

Chapte r 23
Loan Guaranty Purchase Requests CONTINUED
 Extensions to Prudent Liquidation Deadline
a) Case by Case Basis
b) Written Request
c) SBA Approval
d) If approved, new deadline is established
i) Continue 6 month reports until resolution
ii) Continue to comply with Prudent Liquidation
 Consequences
a) Purchase Bank Loan
b) Referral to OCRM
c) Could lose ability to sell on secondary market
d) Suspension of delegated authority

Chapte r 23
Loan Guaranty Purchase Requests CONTINUED
 Annual Service Fee Collection
a) Fo r lo ans appro ve d be fo re De ce m be r 8 , 20 0 4, SBAwillco lle ct
an AnnualSe rvice Fe e thro ug h the date o f g uaranty purchase in
the am o unt in place at the tim e the lo an was appro ve d.
b) Fo r lo ans appro ve d o n o r afte r De ce m be r 8 , 20 0 4:
i) If the le nde r subm its a Wrap-up Re po rt acce ptable to SBA
co ncurre ntly with its g uaranty purchase re q ue st, SBAwillco lle ct
an AnnualSe rvice Fe e in the am o unt in place at the tim e the lo an
was appro ve d fo r a m axim um o f 1 20 cale ndar days fro m the last
inte re st paid to date and “0 ” pe rce nt the re afte r.
ii) If the le nde r do e s no t subm it a Wrap-Up Re po rt acce ptable
to SBAco ncurre ntly with its g uaranty purchase re q ue st, SBAwill
co lle ct an AnnualSe rvice Fe e in the am o unt in place at the tim e
the lo an was appro ve d thro ug h the date the Le nde r subm its
de m and o f the g uaranty purchase and a co m ple te g uaranty
purchase packag e acce ptable to SBA.

Chapte r 24
Denial of Liability on 7(a) Guaranty
When SBA May Deny Liability
Pursuant to 1 3 C. F. R. § 1 20 . 524(a), SBAis re le ase d fro m liability o n its
g uaranty o f a 7 (a) Lo an and m ay, in its so le discre tio n, re fuse to ho no r a
g uaranty purchase re q ue st in fullo r in part, o r re co ve r allo r part o f the funds
alre ady paid in co nne ctio n with a g uaranty purchase , whe the r the y we re paid
dire ctly to the le nde r o r to the se co ndary m arke t inve sto r, if the le nde r:
Failed to comply materially with a Loan Program Requirement
Failed to make, close, service or liquidate the loan in a prudent manner
Placed SBA at risk through improper action or inaction
Failed to disclose a material fact to SBA in a timely manner
Misrepresented a material fact to SBA regarding the loan
Sent a written request to SBA to terminate the guarantee

Chapte r 24
Denial of Liability on 7(a) Guaranty CONTINUED
When SBA May Deny Liability
Failed 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 litigation
Failed to use required SBA forms or exact electronic copies
The borrower has paid the loan in full
Use of Suspended/Deferred Agent
Must review SAM list (50 10)
SBA website list of Agents subjected to enforcement action

Chapte r 26
LenderWrap-up and
SBA 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 Report
a) Electronic Format
b) Once Approved by SBA
i) Loan is charged off
ii) Referred to Treasury for collection
 Wrap-Up Report
a) Within 30 days after all Prudent Liquidation activities are
complete
b) Lenders also must comply with Prudent Liquidation Deadline
c) Consequences
i) Referral to OCRM
ii) Repurchase of Loan by Lender
 Contents

Chapte r 26
LenderWrap-up and
SBA 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. g o v/co nte nt/sba-charg e -pro ce dure s-sum m ary-sug g e
b) For loans serviced at the Fresno or Little Rock Commercial
Loan Servicing Centers:
https: //www. sba. g o v/site s/de fault/file s/file s/SBA_ Charg e _ O ff_ TabsW
 IRS Notification of Charge-Off
a) SBA Denver Finance Office provides 1099-C to Borrower
b) Lenders continue to report to Credit Bureaus until final Wrap-
up Report is submitted to SBA

About the Presenters
Fo r m o re info rm atio n, visit www. le rche arly. co m .
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
adspevack@lerchearly.com.
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 awrind@lerchearly.com or (301) 657-0750.

SBA SOP Updates Presentation 2016-03-04

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