for the SNAP Financial Access Microenterprise and Small Business Lending Programs

Transcription

1 POLICIES MANUAL for the SNAP Financial Access Microenterprise and Small Business Lending Programs 212 S. Wall St. Spokane, WA Revised April, 2011

2 TABLE OF CONTENTS Item Page No. Mission and Objectives 3 Client Business Loans 3 Access Lending Services 4 Loan Products 4 Basic Eligibility 5 Types of Businesses Financed 5 Eligible Uses of Loan Proceeds 5 Ineligible Uses of Loan Proceeds 6 Terms 6 Loan Application Policies 6 Security 7 Loan Decision Factors 7 Loan Committees 8 Loan Approval or Denial 9 Right to Appeal 9 Fees 9 Loan Closings 10 Post-Loan Technical Assistance 10 Code of Conduct 10 Servicing and Collections 11 Borrower Loan Payments, Oversight 11 Late Payments, Restructuring, Refinancing 12 Foreclosure 12 Loan Loss and Write-Off Policies 13 Collateral Seizure/Disposal Policy 14 Bankruptcy Policy 18 Loan Payoffs 21 Access Lending Policies 2

3 SNAP FINANCIAL ACCESS MICROENTERPRISE LENDING POLICIES The policies outlined in this manual provide a framework to guide and direct SNAP Financial Access lending programs. This document will be reviewed periodically for relevance to SNAP Financial Access markets and feasibility. Alterations will be made upon the approval of SNAP Financial Access board and management. GENERAL POLICIES A. Purpose The mission of the SNAP Financial Access Microenterprise Program (Access) is to create income and assets for low to moderate income persons through business development and expansion. This is done by providing comprehensive assessment, technical assistance, business plan development, training and loan funding to those that do not have access to loans from commercial sources. Through its loans and services, SNAP Financial Access (Access) helps small business owners strengthen their businesses, stabilize their incomes, create additional employment and contribute to the economic revitalization of their communities. B. Objectives The main objectives of The Program are to: Encourage economic self-sufficiency for individuals and families. Provide an avenue for low-to-moderate income entrepreneurs to gain access to credit. Afford opportunities for job stabilization and job creation in low and moderate income communities of Spokane County. Build the capacity of low/moderate income entrepreneurs to be successful in business. C. Client Business Loans Qualifying borrowers who can demonstrate a viable business with repayment ability will be considered for individual loans. Consideration will be given to physical collateral and/or a co-signer with a verifiable income, good credit, and a willingness to assume the loan payments if the borrower defaults. See Access Lending Services (below) for further information. Access Lending Policies 3

4 ACCESS LENDING SERVICES A. Loan Products 1. Enterprise Loans. Residents of the City of Spokane may borrow up to $25,000 under the Enterprise Loan Fund (ELF). This may be used for a microenterprise, in which the owner is low or moderate income and has 5 or fewer employees, or for a small business that is creating jobs for low and moderate income people. 2. County Loans. Low and moderate income residents of Spokane County may borrow up to $10,000 under the County Loan Fund (CLF) for a microenterprise with 5 or fewer employees. 3. NWBDA Loans. Low and moderate income residents within the County and City of Spokane may borrow up to $15,000 under the Northwest Business Development Association (NWBDA) fund. 4. Refugee Microenterprise Loans. Non-citizens legally residing in the United States under refugee or asylee status as defined by the US Office of Refugee Resettlement may borrow up to $15,000 with a maximum term of three (3) years. Refugees living in counties served by World Relief of Spokane may apply. 5. Access Green Loans. Businesses within Spokane City and County that create jobs for low income people, complete a sustainability assessment and action plan, and agree to complete certain steps on that plan, may borrow up to $35, SBA Microloans. Microloans may be used for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery and/or equipment. Proceeds cannot be used to pay existing debts or to purchase real estate. Interest rates cannot exceed 7.5% above the rate charged by the SBA for loans above $10,000, or 8.5% above the SBA rate for loans $10,000 or less. Actual interest rates will follow the policy stated in F.2 below. Typical SBA loans will be under $10,000, however in very limited circumstances loans may go up to $35, Matching Loans. Additional matching funds on any of these loans may be available at the discretion of SNAP Financial Access lending partners. B. Basic Eligibility Potential borrowers are screened for income criteria, the feasibility of the proposed business and its alignment with the Access mission, and applicants' demonstrated commitment and capacity for developing a successful business. Access Lending Policies 4

5 1. Income eligibility is based on 80% of Area Median Income, which takes into consideration household income and household size. Borrowers in the Refugee Microenterprise Loan program are not subject to the income eligibility guideline. Borrowers in the ELF, Green Loan and SBA loan programs do not need to meet the income criteria if they are creating jobs for low income people, and those in the ELF and SBA loan programs do not need to meet the income criteria if they are retaining jobs. The source of funds for each loan may carry its own requirements. 2. Other loan eligibility requirements: 1. Applicants are 18 years of age, or older. 2. Applicants live and/or will locate their business in Spokane County or City with the exception of Refugee loans which can be made throughout the World Relief service area. 3. The business activity is legal and can be licensed, as required. 4. Applicants have limited or no ability to obtain affordable financing from traditional sources. C. Types of Businesses Financed Many different types of businesses can be financed utilizing one or more of Access loan products. They include but are not limited to: Start up, emerging, existing, and expanding businesses Retail, commercial, wholesale, service, manufacturing, agricultural, contractors, or some combination of these Sole proprietorships, partnerships, and corporations For profit businesses, with the occasional exception for a nonprofit when allowed by the fund source Home-based businesses as permitted by zoning regulations D. Eligible Uses of Loan Proceeds Loan proceeds must be used for investment in the business, and could include but are not limited to: Fixed assets Equipment Working capital Inventory Consumables, such as supplies Furnishings and fixtures Leasehold improvements Vehicles related to the business Start up costs Professional services Marketing Access Lending Policies 5

6 Development costs E. Ineligible Uses of Loan Proceeds Loan proceeds may not be used for: Illicit businesses Owner s draw Personal Debt repayment or business debt over 1 year old F. Terms 1. Length of Term. Term length will be based on loan size, uses of loan, potential collateral, and client ability to meet monthly payments. Terms typically range from three to five years, but alternative structures, such as balloon payments, interest only, or seasonal payments may also be utilized. 2. Rates. Rates will be offered on a fixed basis, and will be determined upon the date of approval of the loan. Rates will be three (3) points above the Prime rate on that date, with a floor of 8%. A two (2) point discount will be given for refugees and businesses qualifying for Access Green Loans. G. Loan Application Policy Individuals will be considered for loans if they have filed a completed loan application, including the application, a personal financial statement, a business plan, sources and uses table, financial history (as appropriate), financial projections, documentation of collateral, and proof of income eligibility. A $25.00 application fee is collected at that time, via check or money order. The application form, and assistance in completing it, will be provided by Access staff. By signing the form, applicants authorize Access to pull and review their credit report, and vouchsafe that the information provided is true and accurate to the best of their understanding. Staff will guide applicants in developing a business plan as needed. H. Equity While equity is not required of every loan, some amount of equity proposed by the applicant either in cash or assets demonstrates his/her commitment to making the business successful and makes award of the loan more likely. Access Lending Policies 6

7 I. Security SNAP Financial Access requires that each applicant provide collateral equal to the amount of the loan requested. Collateral may be calculated against loan proceeds, other business assets, and personal assets. A co-signer or other form of security may be provided in cases where collateral is insufficient. Cosigners must be able to demonstrate ability to repay the loan through income and/or assets. A co-signer must be over 21 years of age, must verify employment and or income for one year, and have good credit. Valuation of Collateral 1. Equipment. Generally, new purchases such as equipment will be valued at 80% of its purchase price, while used will be valued at 50% of purchase price, or fair market value which can be derived by comparables in the marketplace. The exception shall be restaurant equipment, which will never be valued at more than 50% of its purchase price or market value; and computers, which will be valued at 50% or less of purchase price, even when new. 2. Pledged assets of indeterminate value will be assigned a fair market value or require a third-party expert estimate of value. 3. Vehicles may be valued at NADA or Kelly Blue Book for loan value. Securing Collateral All collateral will be secured by Access through the use of UCC s, vehicle title liens, mortgages, and security documents, as relevant to the collateral. J. Loan Decision Factors Loan requests will be considered on an individual basis using the following factors. The degree to which any one factor will result in denial of a loan depends on the size of the loan, and the strength of the other factors. The loan committee will consider the following factors: a) Ability to Repay the Loan The applicant shows evidence of another income source (employment or other regular payment) and likely/current income generated by the business. There must also be enough income left over to support the personal and family needs of the owner. b) Equity Equity demonstrates the ability and willingness of the owner to risk cash and/or collateral to make their project work. Not all borrowers must Access Lending Policies 7

8 invest cash equity, however there must be balancing credit factors if equity is not present. c) Break-Even From the financial history and/or financial projections, the break even analysis should demonstrate the applicant s understanding of potential market, and ability to determine at what point the business will begin to make money. d) Credit History While credit histories for Access applicants may be low-performing or sparse, reviewers will consider the patterns of repayment that have been established; and the circumstances that led to certain items on the credit report. e) Collateral Collateral is equal to or greater than the value of the loan will be secured. A qualified co-signer has been secured as needed. Collateral should never be used as the sole determinant of whether a loan is approved or not. f) Market Factors The applicant has demonstrated reasonably good understanding of the market, and the competition, and has developed an appropriate marketing strategy for business success. g) Management and Operations The applicant demonstrates the ability, experience and capacity to manage and operate the business. h) Support System The degree to which the owner has healthy connections with family, business associates, strategic alliances, or other systems that will assist in moderating the stress of business ownership and promote business growth will be reviewed. i) Good Will Applicant shows a willingness to abide by other contingencies that may be required in the loan agreement, such as technical assistance or training requirements. K. Loan Committees There will be two loan committees active within SNAP Financial Access. The first will be composed entirely of Access staff, and will consider loans requests of $3,000 or less. The second will be composed of four members, including community representatives with lending and business counseling Access Lending Policies 8

9 expertise, and the Access Director, and will consider loans greater than $3,000. L. Loan Approval / Denial Loan review will be conducted within two weeks of receiving all required documentation from the applicant. Loan decisions will be considered official if a majority of loan committee members present vote to approve or deny. Applicants will be notified immediately by phone following a decision as to whether or not their application has been approved. Each applicant will then receive a letter within five working days detailing the decision and next steps. M. Right to Appeal Denial Loan applicants whose loan applications have been denied will be given notification outlining the reasons for the denial of credit. Applicants have the right to appeal denials for individual loans by submitting a written appeal letter to the SNAP Financial Access office within five business days. A committee of the Access Director and two loan committee members will review appeals for individual loans. Responses to the appeals will be provided to the applicant in writing. N. Fees SNAP Financial Access reserves the right to charge fees for different services rendered as part of its lending program. As well, it intends to charge late fees. Fees may be waived at the discretion of the Director. These fees are detailed as follows: Loan Application Fee. A non-refundable application fee of $25 is due at the time of application. Loan Fees. Loans funded will incur a loan fee of 3% of the loan amount up to a maximum of $450. This amount is due at closing and, in some cases, may be financed into the loan. The exception is the SBA loan, which has a maximum borrower contribution for loan processing of $100 plus the actual cost of securing the loan, dictated by the funder. Security Costs. Any expense incurred as a result of securing the loan will be payable by the borrower, either directly or financed in the loan. Access will provide borrowers with an itemized list of such costs. Late Fees. A late fee of 10% of the delinquent amount will be charged beginning on the tenth (10th) day after the payment due date. Interest will accrue daily on payments that are late. O. Loan Closings All loan closings will be conducted in person by the Financial Services Specialist (or an alternate) and will utilize a closing checklist to ensure consistency and Access Lending Policies 9

10 fairness in working with the borrower. The checklist will become a part of the borrower s file. 1. Access shall disburse loan checks to third parties when possible, such as closing agents, escrow companies, vendors and similar entities either through a check or an ACH (automated transfer). When real property is being purchased with Access participation, a closing agent is required. If given directly to an individual, documentation of identity and receipt shall be secured. Access shall mail disbursal checks when desirable. 2. The individual loan disbursal session shall consist of the following processes: a. Review the program policies and procedures with borrower. Emphasis must be placed on the importance of on-time repayment as applicable. b. The borrower, spouse, co-signer and loan originator meet together to review and sign the loan documents, which could include: the promissory note and loan agreement, the security agreement, the cosigner agreement and any other documents required by SNAP for the completion of the loan process. c. All borrowers who are securing real property with SNAP participation must be informed of their 3-day right to rescind. d. All debts secured by real property must be recorded at the County Auditor s office in a timely manner. e. All original deeds of trust, titles, and promissory notes must be held in a fireproof safe. P. Post-Loan Technical Assistance SNAP Financial Access Staff will prepare and implement a plan of post-loan technical assistance with each borrower to assist in the success of their business. Borrower will sign a commitment to participate in a specific postloan assistance plan, along with a release of liability. Q. Code of Conduct with Applicants and Borrowers Staff may not ask for or accept any personal favors, discounts, or gifts over $25 from Program borrowers. All staff, loan committee, and volunteers will sign and abide by a confidentiality pledge regarding the information that they review on behalf of applicants and borrowers. Information provided outside of the organization to loan reviewers shall be destroyed immediately upon a loan decision being made. Access Lending Policies 10

11 Program staff and loan committee members are prohibited from owning a financial share or fractional part of any business that receives a loan. The Director will conduct periodic audits of the performance of the Business Development Specialists. Any complaints by clients of inappropriate behavior on the part of staff will be immediately investigated by the Director. SERVICING AND COLLECTIONS Access will collect payments from borrowers as scheduled in their promissory notes. When a borrower falls behind in his or her payments, a schedule of actions will be followed as detailed below, to (1) assist the borrower to become current; (2) collect back payments; or (3) collect as much payment as possible, through whatever legal means necessary, to recoup the loan amount. A. Borrower Loan Payments & Loan Oversight: 1. All loan payments are due on the 1st of each month. For ease of accounting, all loan payments will be made using automatic withdrawal (ACH) from a business or personal banking account on or before the 5th of each month. If a due date falls on a week-end or holiday when the payment site is closed, the payment is due on the next business day. 2. All loan participants shall be informed of their obligation to pay under the conditions of their loan and of any interest accruing if applicable. 3. Borrowers will receive quarterly statements at their address of record informing them of the status of their loan, including an annual statement for tax purposes. B. Late Payments, Restructuring, Refinancing, Forebearance Between 10 and 30 Days Late. If it becomes evident that a borrower is struggling to repay his/her loan, staff will work with the borrower, preferably in person, to identify the nature of the problem. Action steps will be identified until the borrower can catch up. The staff will then write up the recommendations in a letter to be reviewed in person and signed by both the client and staff. Thirty Days Late. If payment has not been received thirty (30) days after the due date, the collections officer or other staff person will follow up Access Lending Policies 11

12 with a letter stating the amounts past due, explaining that the borrower is in default, and describing the actions that may be taken in case of default according to the loan documents. Any co-signers will be copied. In all cases, the staff will make a site visit. 60 Days Late. By the 60th day past due, the loan will be called into default. The collections officer will double-check that all collateral documentation is in order and that all insurances required by the borrower are in place. The staff will examine the situation, based upon a detailed account of the borrower's operational information and a review of the collateral. A meeting with the borrower may be arranged with the staff to create a collection strategy. The borrower will be sent a certified, returnreceipt letter that the loan is now formally in default, and the identified strategy will be documented. C. Foreclosure In most instances foreclosure on a loan and collection of collateral will be viewed as the last option. There are, however, instances when foreclosure is the best option and the only remedy to a deteriorating situation. All foreclosures will be carried out with a goal of providing maximum return and protection for Access, SNAP, and other affected parties. Collateral liquidations will attempt to cover the cost of the outstanding loan principal, any accrued interest owed to the lenders, and the transaction costs of liquidation. Collection Steps Formal Default Letter Details the event of the default, the amount of principal, interest, and fees owing, and citing those paragraphs from the note that describe when a default occurs. States the intention to collect collateral and take other actions to fully recover from the default. Repossession Letter Sent after collateral has actually been collected, and provides the borrowers with the chance to redeem their collateral. Notice of Potential Sale Letter - Notifies borrowers that their collateral has been put up for sale. Access will make its best effort to recover a fair value for the goods, to try to reduce the remainder that it will still need to collect from the borrower Notice of Sale Letter Serves to notify the borrowers of the results of the sale and lets them know how much remains on the account. Court Action Access will seek a judgment in small claims or district court, to recover any additional debt after all other efforts to collect have failed. Access Lending Policies 12

13 Only if no mutually agreed settlement can be reached should Access seek recovery of debt in the courts. The decision to file a judgment may be waived at the discretion of the Director. Bankruptcy If the borrower declares bankruptcy, the following procedures will be followed: 1. When a bankruptcy is filed, Access must cease any collection action including telephone calls, billing or law suits that might be pending against the debtor. 2. When notice of bankruptcy is received, Access must file a proof of claim with the court within 21 days. 3. Determine the type of bankruptcy. If it is a Chapter 7, assets are liquidated and sold with creditors receiving priority on the proceeds. If a Chapter 13, then the assets and debts are restructure under a court adopted plan and payment should continue. 4. A designated Access personnel should monitor the bankruptcy as debtors may fail to comply with the requirements of the Code, in which case Access can proceed with collections under Washington law. 5. Attend 341 Meeting of Creditors. Approximately a month after filing, the trustee will call a first meeting of creditors which the client must attend. Access will have 60 days after the first date set for the debtor s meeting of creditors to challenge the debtor s right to discharge and make a claim for repayment of debt owed. D. Loan Loss and Write-Off Policies Efforts to collect in default will continue until exhausted as deemed feasible by the program staff. Any loan on which no payment has been made for 180 days will automatically be written off. Funds collected on written-off accounts will be posted as recovery. Loans that result in a filing of Bankruptcy will not be written off unless payments are not received for 6 months. Other loans may be written off, on a case-by-case basis, if their recovery is seen as unlikely. 1. Write-Off Policies a) In a write-off situation the program manager and a member of accounting shall assess the circumstances surrounding the write-off and make a recommendation in writing with accompanying documents verifying the circumstances leading to the recommendation. Access Lending Policies 13

14 b) The recommendation shall be based upon reasonable judgment and will take into consideration the following factors: 1. Value of the collateral. 2. If the loan has been sent to a collection agency. 3. Current ability of the client to pay. 4. Amount loaned. 5. Access loan position if secured. 6. Likelihood of repayment. 7. Cost of collection. 8. If the client has filed for bankruptcy. 9. If there are other debts to be considered. c) The write-off recommendation shall be reviewed and must be approved by the Executive Director. Any write-off greater than $ shall be reported to the Board of Directors at the next scheduled Board meeting. d) The related allowance for doubtful accounts shall be adjusted by accounting upon receipt of the approved write-off. 2. Board Approval of Write-Offs All loan write-offs over $10,000 require Board approval. If time is of the essence, the Administrative Committee can approve the write-off, subject to ratification by the full Board at its next meeting. E. Collateral Seizure/Disposal Policy 1. Collateral Seizure a) Client asset(s) used to collateralize a loan, once seized, can be sold. The proceeds from the sale of the collateral will first be used to reimburse any Access costs associated with seizing and storing said collateral. Residual proceeds from the sale can be used to either reduce any late charges, interest, and/or principle owed by the client, or to be used to reduce the impact of a loan write off, pertaining to that client, in the appropriate loan program(s). If the proceeds do not cover the loan and expenses, Access may sue the client for the full amount owed including repossession fees, auction costs and legal fees. b) As pertaining to collateral disposal, there is a legal 21 day waiting period that must be given to the client which allows said client to Access Lending Policies 14

15 repurchase the collateral back from Access prior to Access selling the assets. The 21 day waiting period begins once the notice of repossession is given. This is in accordance with Washington State Law RCW 62A.9A-620. c) If a client has repaid 60% of the loaned amount to the program, Access must sell, lease, or otherwise dispose of the seized collateral unless the client signs an agreement with Access that permits Access to keep the collateral as full payment on the loan as stated in Washington Law RCW 62A.9A-620. The sale must be held within 90 days after it is repossessed and the client must be notified of the time and place of the sale. d) If a client has repaid less than 60% of the loan amount to the program, Access may sell or keep the seized collateral as payment of the loan. The client must be notified of Access intentions, and thus, the client has 21 days to protest in writing that the item MUST be sold and not kept by Access. i. The client must be notified of the time and place of sale for the seized collateral. e) If the client wishes to redeem the repossessed collateral, they can do so prior to paying all associated fees relating to the repossession activity conducted via Access. This redemption must take place prior to any sale of the collateral or contract to sell said collateral, within 21 days of receiving notice that Access is going to maintain possession of the collateral or prior to any agreement between the client and Access to accept collateral as full or partial payment on debt obligation as per Washington State Law RCW 62A.9A-623. i. Access reserves the right to return repossessed collateral to the client as per a restructuring of the loan agreement. 2. Collateral Storage. a) The seizure of a client s asset(s) that serves as collateral to an Access loan obligation, once in SFA possession, shall be securely stored. Such seized pieces of collateral are now considered Access assets. The vendors used in the storing of the seized collateral are determined via the collateral type. b) Vehicles that serve as collateral are stored at a predetermined lot that Access has an agreement with for allowable vehicle storage. SNAP insurance provider, Maloney & O Neil will be notified that there is an Access Lending Policies 15

16 Access asset being stored at this location, so they can in turn extend the insurance coverage for that particular asset(s). c) Other client assets that serve as loan collateral, excluding property secured via a deed of trust, will be stored in a storage unit. The storage unit provider will be chosen based on a three bid system, in which the vendor with the lowest cost, easiest access, and overall unit availability for what Access needs, shall be chosen. d) All collateral secured via a deed of trust are excluded from the storage issue. 3. Determine Collateral Value a) Once collateral securing a loan is seized from the client and secured, the current market valuation of the collateral is determined depending on that particular type of asset. b) If the collateralized asset(s) is a vehicle, the National Automobile Dealers Association (NADA) appraisal values are utilized to determine the value of that vehicle. c) If the collateralized asset(s) is a deed of trust on an individual s property, that deed s value is that of the amount owed currently on the loan including all accrued interest and related fees. i. If Access does foreclose on a deed, a detailed memo needs to be written as to the course of action to be taken on the deed to the property and an explanation provided as to the lack of certain actions as well. ii. Access does have the right to purchase all debt related to the property and own the property outright, in which Access can in turn resell the property as it sees fit. d) If the collateralized asset(s) is something not classified as a vehicle or a piece of property secured via a deed of trust, that asset s valuation is determined via research conducted on Craig s List, ebay, or via consulting market-place suppliers or vendors of such an asset(s) or types thereof. e) After the current fair market valuation has been determined utilizing the previously mentioned methods, a memo will be sent to the Accounting Department detailing the valuation method used, the current description of the collateral and the plans for it. f) All collateral that secures an Access loan shall be entered into the LSSI Servicer 3D loan subsidiary ledger system. This system will track and report all active loan collateral on current outstanding loan obligations. Access Lending Policies 16

17 Seized collateral will be tracked via individual programs balance sheets as booked assets, and will be thusly supported via the separate Seized Collateral Subsidiary Ledger maintained by the Accounting Department. 4. Disposal of Collateral a) Collateral will be booked and recognized as an asset of the program from which the loan that was secured by the collateral was issued. b) A subsidiary ledger will track all seized collateral being secured via Access, and will provide an overall description of the collateral and the status of it. This subsidiary ledger will reconcile, per the valuation of these assets to what is booked in the accounting system. The Accounting Department will be responsible for maintaining the Seized Collateral Subsidiary Ledger. c) A memo will be submitted to the Accounting Department describing in detail the plan of action that will be taken as to the disposal of the seized collateral. The level of detail shall include the following at minimum: ii. Sale Value of collateral. iii. Method used to determine the Sale Value of collateral. iv. Media to be used for notice of sale. v. All costs associated with act of selling the collateral. d) Gains and losses resulting from the disposition of the seized collateral assets will be recognized via a reduction of the initial write off expense in a purely revolving loan program, or as an increase to the liability back to the funding source when in a loan program that has an active contract. e) Any gains in excess of all repossession costs, collateral disposition costs, associated loan fees, accrued interest, and loan principle, must be returned to the client. 5. Voluntary collection of collateral There are times when a loan is not in default but the borrower wants to sell the collateral and apply it to the loan, usually after a business has closed and the borrower is struggling to make the payments. There are two options for handling the collateral in this situation: a) Voluntary repossession a. Borrower must sign voluntary repossession agreement to surrender ownership in specific collateral and transferring any title or Access Lending Policies 17

18 ownership document to SNAP and any proceeds will go to cover the owed balance on the loan. b. Collateral must be described as specifically as possible including VIN or any identification number, any defining marks, and any noticeable damage in conjunction with digital photographs in order to get the proper appraisal of fair market value. c. Collateral will be sold using commercially reasonable means to affect the sale. d. Any gains in excess of all repossession costs, collateral disposition costs, associated loan fees, accrued interest, and loan principle, must be returned to the borrower via hand delivery or certified mail in the form of a check, money order, or cashier s check. b) Borrower sells collateral a. Borrower may sell the collateral to cover the cost of the loan ONLY with the written, signed approval of authorized SNAP Financial Access employee and with the signed letter of commitment by the borrower to have all proceeds from the sale payable to SNAP Financial Access. b. If the sale of the collateral will not cover the balance of the loan, we will not provide approval until payment arrangements have been made on the deficiency. c. Any unauthorized sale of collateral by Borrower will result in breach of the lending agreement and Borrower will be in default and subject to judgment and other penalties. F. Bankruptcy Policy Bankruptcy Prevention a) It is important to convey to borrowers that if they don t repay their loan someone else will not receive a loan, and that we may have to come up with additional funds to repay our lenders. b) Access offers many options for borrowers who are experiencing financial difficulties, including free credit counseling, loan restructuring, and lowering monthly payments. Each of these is designed to help the borrower avoid bankruptcy. Bankruptcy Procedures a) Automatic Stay: Section 362 of the Bankruptcy code provides immediate protection for the member by creating an automatic stay Access Lending Policies 18

19 against all actions by the lender against the member. Upon receipt of the bankruptcy notice or letter from an attorney stating that a bankruptcy petition has been filed, ALL collection activity including repossession and foreclosure must cease immediately. Neither further action nor contact will occur unless the bankruptcy is dismissed or we have been granted a lift of stay (LOS). Bankruptcy procedures will be followed until discharge or dismissal. The filing of a bankruptcy creates an automatic stay that prohibits us from pursuing any collection actions against the member. Once the notice is received we need to review the notice and determine the pertinent details. This information should be noted in Capsys notes: The date the petition was filed The chapter it was filed under The date by which the claim must be filed The date of the first meeting of creditors or confirming hearing b) Case file: To manage the bankruptcy case effectively, we will need to include in the client s file copies of all documents related to the bankruptcy proceedings, including the following: Proof of claim Reaffirmation agreement Client s repayment plan Any pleadings and notices Correspondence with the client s attorney Types of Bankruptcy a) Chapter 13-Reorganization or Consolidation of Debt Upon receipt of a Chapter 13 filing a proof of claim will be filed. The claim will include the total debt and arrearages. Generally, you will be able to view a copy of the plan on the Internet. If not listed, an action date or tickler date will be set for two weeks after the notice of the Chapter 13 filing for receipt of the member s repayment plan and notice of confirmation hearing. If we do not receive a plan within that time period, contact the debtor s attorney and request a copy. Set an action date for five days later. If the plan is not received in five days contact the court for a copy. When the plan is received the bankruptcy Access Lending Policies 19

20 specialist will verify the post (current) and pre-petition (delinquent prior to filing) payments on the plan match the proof of claim. **Caution** If a plan is accepted and it does not match our claim we must abide by that plan. The specialist will also determine if the client has enough regular income to make the plan payments and that the repayment plan is realistic based on the disclosure statement. If any of the answers are no, we need to file an objection to the plan prior to the confirmation hearing. If an objection is not filed prior to the plan hearing and the plan is accepted, it will be binding unless the client defaults on repayment. In most cases other than real estate the payments will generally be post petition. A determination to seek an adequate protection order will be made on a case-by-case basis depending upon the value of collateral. NOTE: All Chapter 13 Trustee payments are posted to principal only until the balance is paid down to $ at which time the remaining payments can be applied to interest until paid in full or the plan is complete. b) Chapter 7 Straight Bankruptcy Under a Chapter 7 bankruptcy filing all of the borrower s unsecured debt is discharged. Most proceedings are completed in 120 days. Repayment plans are not required in a Chapter 7 filing but we can make repayment plans at the borrower s request. The payment arrangements should not extend beyond the discharge date. If the trustee files a no asset report and is abandoning the property, we should immediately seek relief. Upon the granting of relief or discharge we should begin repossession or foreclosure action. If the borrower s intent is to surrender the collateral, Access staff should contact the attorney to make arrangements to pick up the collateral. In some cases we may need to obtain a Lift of Stay (LOS) in order to obtain the collateral. c) Reaffirmation Agreements Access will comply with all bankruptcy laws and regulations in obtaining reaffirmations. d) Chapter 11- Business Bankruptcy Access Lending Policies 20

21 During the first 120 days following the filing of a Chapter 11 the client has the right to file a proposal repayment plan. The confirmation process is lengthy and complex. Payment Monitoring a) When a repayment plan or post petition payments are 45 days delinquent a letter will be sent to the client s attorney notifying them that if the account is not brought current we will seek relief from the automatic stay. At the 65th day of delinquency the account will be reviewed and a decision will be made by the bankruptcy specialist to seek relief. **NOTE** Most bankruptcy judges will not grant relief until the plan is 90 days past due. b) It is the policy of SNAP to cooperate with consumer credit counseling organizations. Proposals are accepted when they are believed to be in the best interest of the client and SNAP. G. Loan Payoffs If a client wishes to pay off a loan, the accounting staff calculates the payoff amount and consults with the program staff to ensure that pay-off amount is proper and there are no other contractual limitations on the property. There will be no pre-payment penalty. 6. When a loan is fully paid on a loan secured by real property a signed reconveyance of the deed of trust shall be completed and caused to be recorded at the Spokane County Auditor's Office through a closing agent, title company, a trustee, or other appropriate professional in the industry. a) When communicating with a closing agent, title company, trustee or other professional involved in a loan payoff, Access shall inform the third party that it is their responsibility to collect any reconveyence fees. Access Lending Policies 21