Liquidation: Protective Bids, REO Management & Offers in Compromise. Sierra Grand Ballroom Tuesday, June 17, :00 pm 4:00 pm

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1 Liquidation: Protective Bids, REO Management & Offers in Compromise Sierra Grand Ballroom Tuesday, June 17, :00 pm 4:00 pm

2 Thank you to our Alliance Partners Fresno, CA June 17-18

3 Speakers Barbara Jung, Assistant Center Director for Liquidations U.S. Small Business Administration Gary Wamhof, Assistant Center Director Post Servicing Actions U.S. Small Business Administration Moderator: John D. Evans, Executive Vice President, Credit Administrator Mountain West Small Business Finance Fresno, CA June 17-18

Actions U.S. Small Business Administration Moderator: John D.

4 Offer in Compromise (OIC)

5 Offer in Compromise (OIC) Resources the CDC should be familiar with: *SOP: Chapter 23 * CFR: The general requirements for compromise of a debt owed on an SBA loan are based on 31 U.S.C and 31 C.F.R. Part 902 (Standards for Compromise of Claims by an agency of the Federal Government).

a debt owed on an SBA loan are based on 31 U.S.C. 3711 and 31 C.F.R.

6 Chapter 23, SOP, an overview When Offer in Compromise is appropriate, pages General requirements, pages Supporting documents, pages Review and analysis of offer, pages Adequacy of proposed amount, page 141 Inadequate offers/counter offers, page 142 OIC term, pages SBA review and approval, page 143

Review and analysis of offer, pages 140-141 Adequacy of proposed amount, page 141

7 Topics of interest for CDC s How to submit the OIC Do I need to submit an OIC we decline? In general, when is an Offer in Compromise appropriate? Parties submitting the OIC Global OIC for all loan parties or one OIC per obligor/guarantor? Are there unique requirements for a borrower that is an ongoing concern? What is the most common reason SBA has to screen out an OIC? Is there a minimum OIC amount? Will SBA compromise for the amount received on a short sale of project collateral? Additional things to consider

Parties submitting the OIC Global OIC for all loan parties or one OIC per obligor/guarantor?

8 How to submit the OIC CDC s are encouraged to use the TAB system which can be found on the SBA banking website:

9 Do I need to submit an OIC we decline? Per the SOP, page 142: Unacceptable offers and counter-offers should not be forwarded to SBA.

10 When Offer in Compromise is Appropriate * Business Closed and Collateral Liquidated * Going Concern SOP pages 137 & 138 SOP page 138: Compromise with a going concern is only appropriate when the viability of the business concern is at stake and acceptance of the offer will not harm the integrity of the SBA loan program. (See Paragraph D below for detailed information on compromise with a going concern.) The offer in compromise process must not be used as a means for a business that is experiencing temporary cash flow problems to write down its debt. (See Chapters 6-17 for information on tools that can be used to help resolve temporary cash flow problems such as re-amortization, deferment, or a workout.)

(See Paragraph D below for detailed information on compromise with a going concern.

11 When Offer in Compromise is Appropriate, continued The Compromise amount must bear a reasonable relationship to the amount that could be recovered in a reasonable amount of time through enforced collection proceedings and is sufficient to protect the integrity of the SBA loan program.

recovered in a reasonable amount of time through enforced collection

12 Parties submitting the OIC For the most expeditious processing of the OIC package, please be clear on who the Offerors are. The information in TAB 1 (who is making the offer) should be consistent with the remaining documentation in the Kit. Form 1150 must be signed by all Offerors.

The information in TAB 1 (who is making the offer) should be

13 Global OIC s Generally, a global OIC for multiple individuals (unrelated parties) is not encouraged. An OIC will be accepted if it reflects the Obligor s true ability to pay and will be rejected if the Obligor can pay more than the amount offered. One strong party could result in an OIC denial for an otherwise weaker party.

An OIC will be accepted if it reflects the Obligor s true ability to pay and will

14 Global OIC s, continued A compromise with one Obligor does not release the remaining Obligors because each is jointly and severally liable, i.e., full payment may be requested from one or all of the Obligors. No attempt should be made to divide payment responsibility between the Obligors or to use the compromise amount with one Obligor as the basis for the compromise amount from another. (31 C.F.R )

No attempt should be made to divide payment responsibility between the Obligors or to use the

15 Global OIC s, continued If the business is defunct/closed/not operational, it may make sense in some cases to add it the OIC package.

16 Ongoing concerns For a borrower that is an ongoing concern, pursuant to SOP page 140, the following factors must also be addressed: 1. The compromise must be necessary to avoid closure of a small business, i.e., the business must not be able to continue operating under its current debt structure and all other options for remaining viable must have been exhausted including, for example, the sale of non-essential assets and the closure of nonprofitable locations; 2. The Borrower must pass the Feasibility Test for a successful workout set forth in Chapter 17; 3. The compromise must be part of an overall debt restructuring plan that involves all of the Borrower s creditors; 4. The specific details regarding the Borrower s secured and unsecured debt and debt reduction arrangement with each of its creditors must be set out in a written agreement signed by all of the Borrower s creditors; and 5. The Borrower s proposed treatment of the SBA loan must be fair and equitable in comparison to the treatment to be received by the Borrower s other creditors. This includes, for example, the percentage of debt to be forgiven, whether collateral is provided or retained if the compromise amount is to be paid in installments, and whether other lenders are allowed to participate in an appreciation sharing agreement.

viable must have been exhausted including, for example, the sale of non-essential assets and the closure of nonprofitable locations; 2.

17 Incomplete packages The most common reason for a screen out of an OIC is due to questions pertaining to the borrower s financial statements, especially form 770. Please ensure: SBA form 770 or equivalent must be signed/completed. Please include SBA form 413 (personal financial statement from loan origination). Any discrepancies are resolved. Financial statements should be closely scrutinized and all discrepancies resolved before submission of the package to SBA. SBA must have full disclosure. The absence of full disclosure indicates a lack of good faith on the part of the offeror and therefore no basis for an OIC.

Please include SBA form 413 (personal financial statement from loan origination). Any discrepancies are resolved.

18 Minimum OIC amounts? SOP page 141: The compromise amount must be a reasonable relationship to the amount that could be recovered in a reasonable amount of time through enforced collection proceedings and must be sufficient to protect the integrity of the SBA loan program. Generally, the compromise amount should be more than $5,000. The compromise amount may be $5,000 or less if a larger amount would cause Financial Hardship.

recovered in a reasonable amount of time through enforced collection proceedings and must be sufficient to

19 Is a Short Sale an appropriate OIC amount? SBA will not generally compromise for the amount it receives via a short sale of project collateral. The short sale transaction and the OIC transaction are two separate and distinct actions.

20 Additional things to consider Obligors do not have a right to compromise the amount they owe on their SBA loan. To protect the integrity of the SBA loan program, obligors should be referred to Treasury for further collection efforts rather than be allowed to compromise for an amount that is nominal relative to their loan balance.

To protect the integrity of the SBA loan program, obligors should be referred to

21 Additional things to consider, Treasury offset includes: continued Federal or state income tax refunds. Federal salary, military salary or federal retirement pay. Federal or state contractor or vendor payments. Federal or state benefit payments, such as Social Security payment.

22 Additional things to consider, continued What may happen if a loan is referred to treasury for servicing? Treasury may report debtors to credit bureaus. Treasury may garnish wages. Loan may be referred to a private collection agency. Loan may be referred to U.S. Department of Justice. Reporting of loan to IRS as potential additional income that may be subject to taxation. Treasury fees added to loan balance (28%-30%).

23 Additional things to consider, continued Acceptance of an OIC is considered to be a loss to the Federal Government and may adversely impact the Obligor s ability to obtain future financing from the Federal Government including another SBA loan.

24 Additional things to consider, continued Whenever there is a concern that an Obligor may have engaged in fraud or other irregular activity in connection with an SBA loan, (e.g., made false statements or submitted false documents), the matter must be reported to the Office of the Inspector General. (Chapter 27). Prudent action under the circumstances may also include consulting legal counsel to determine whether action under Title 31, Chapter 38, Administrative Remedies for False Claims and Statements (31 U.S.C ) is appropriate. (Managing Federal Receivables, Chapter 7, page 14)

25 Questions???? For general questions: United States Small Business Administration Fresno Commercial Loan Service Center 801 R Street, Suite 101 Fresno CA Phone: Fsc.postservicing@sba.gov Web: Gary Wamhof, Supervisory Loan Specialist Gary.wamhof@sba.gov x2912

26 Wednesday, June 18: What s Up Next SBA Servicing Center Roundtable and Q & A Session Sierra Grand Ballroom Tours of the SBA Servicing Center and Networking Event Meet the Bus at the Hotel Main Entrance Fresno, CA June 17-18

SBA S NEW SOP 5057 7(A) LOAN SERVICING & LIQUIDATION

1 SBA S NEW SOP 5057 7(A) LOAN SERVICING & LIQUIDATION In association with COLEMAN PUBLISHING What changed? What you need to know. What we will cover in today s session: 2 Purpose of this new SOP What