Best Practices for Liquidation & Servicing Procedures

Sierra Grand Ballroom

Tuesday, June 17, 2014

9:45 am – 11:15 am

Fresno, CA | June 17-18

Thank you to our Alliance Partners

Fresno, CA | June 17-18

Speakers Barbara Jung, Assistant Center Director for Liquidations U.S. Small Business Administration Ray Kulina, Assistant Center Director for Servicing U.S. Small Business Administration Sandy Mortan, First Vice President New Jersey Business Finance Corporation Moderator: John D. Evans, Executive Vice President, Credit Administrator Mountain West Small Business Finance

Fresno, CA | June 17-18

Fresno, CA | June 17-18

504 LIQUIDATION

Keys to a Smooth Liquidation

Start Early

• It is easier to bring current at one month than at 6 months.

• Monitor the portfolio closely. Watch for abnormalities.

• Request Purchase in a timely Manner - 90 days or more past due and as close to the Semi-Annual payment date as possible.

HOW TO REQUEST PURCHASE

• Fresno has a form to help rule out purchase errors.

• Cut Off to request purchase is the 11th working day of the month prior to the date of purchase ( 11th working day of June is the cutoff for July purchase).

Cancellation/Recall of a purchase request

• Last day to recall a purchase if decision to purchase is changed is the 21st of the month prior to the purchase ( June 21st for a July purchase).

• It is a lot of work for a lot of people to recall a purchase request. Please make it the exception and not the rule.

LIQUIDATION PLANS

• All CDC’s should prepare and submit a Liquidation Plan within 30 days of purchase.

• Liquidation Plan should include all information on the template and the site visit report.

• Tax ID numbers for businesses and Social Security Number for individuals are a must.

• Do not use a Social Security Number for a corporation or LLC.

• Please obtain an appraisal and prepare a collateral analysis. (Appraisal must be current within 12 months).

Try for a Work Out

• Most parties are still cooperative. This is the time to push for a work out and get current financial information. If the work out does not go through, obtaining current financial information is still beneficial.

• Current TPL information is very important. Maintain contact whenever possible.

What can be done in a work out

• Extension of maturity.

• Reduction in interest rate.

• Re amortization of the loan balance over the new term at the new interest rate.

• Further temporary reduction in payments.

• When in doubt call and talk to us, we will help you work through the process.

What to submit for a Work Out

• Written request and recommendation from CDC on behalf of the borrower.

• Current Financials for all parties (within last 12 months)

• Current Tax Returns for all parties (for last filing year).

• Cash flow analysis .

• Note Modification Agreement (template available on website).

Treasury Referral

• To maintain DCIA compliance a loan is referred for OFFSET only at 180 days past due, or at the time of purchase whichever is later.

• You can still work with the borrower while the loan is in offset.

• Keep us informed of changes-

– We have to stop offset in the event of a Bankruptcy

Offset by Treasury will continue unless the loan is brought current, an executed Note Modification Agreement is received under an approved workout, a compromise is approved, or SBA is notified of a bankruptcy filing.

Administrative Wage Garnishment

• Who is eligible

– An individual obligor/guarantor that reports W2 income on tax return.

– Are not self employed.

– Have been employed 12 months or more.

AWG can be initiated by SBA unilaterally at anytime during the liquidation process.

Foreclosure Facts

• Judicial Foreclosures have a Redemption Right procedure. Refer to District Counsel for state specific time frames.

• Monitor the foreclosure for changes and cancellations.

• Keep the SBA informed.

UCC Collateral

• Be mindful of the UCC Collateral.

• The TPL may lose their lien position on the UCC Collateral upon real estate foreclosure.

• Foreclosure by the TPL must specifically include the UCC collateral; and, the full amount owed must be listed on the foreclosure.

We depend on you

• You are the SBA’s eyes and ears in the field. Please keep us informed.

• You are closer to the situation than we are. We welcome your assistance and input.

• The Fresno Service Center is the first point of contact for the CDC on any loan in liquidation.

If the 504 Loan moves to 1st lien position on the collateral

• Based on the results of the collateral analysis; CDC must obtain a current title report, and Environmental Reports as appropriate in order to support a recommendation to move forward with a foreclosure action by CDC/SBA.

• If no, or minimal equity, CDC to recommend that collateral be abandoned. Move forward with collection efforts.

Foreclosure action by CDC/SBA

• Secure real property collateral.

• Secure and safely store equipment and other collateral.

• Dispose of the collateral as soon as possible.

Acquired Collateral

• SOP 50 55 Chapter 22 states Acquired collateral should be disposed of within 12 months of acquisition.

Strategy for Acquired Collateral

• Real property must be secured as soon as possible.

• County Officials to be informed that an Agency of the Federal Government is the property owner preventing further property taxes being levied.

• Transfer utilities to SBA. • Maintain hazard insurance. This is a reimbursable

expense. • Be mindful that an empty building loses value

very quickly. Get it sold ASAP.

Disposal Strategy

• Normal process is to list with a commercial broker for a period of 4- 6 months.

• If no sale through conventional means consider alternatives such holding an auction to dispose of property.

• Check delegated authority regarding Listing Agreements.

If there is Litigation…..

• All CDC’s must submit a Litigation Plan for SBA’s Written approval prior to initiating non-routine litigation. If a litigation case becomes non-routine in the litigation process, a Plan must be submitted.

• CDC’s must not take further litigation action without SBA’s written approval of the Plan or the amended Plan.

• Please submit plans early to avoid emergency situations.

Are we done Yet?

• Almost –

– After the collateral is gone;

– The Work Out and Compromise attempts have failed;

– AWG is not a possibility;

What’s Left?

• Determine if any obligor or guarantor has recoverable assets:

– Equity in other real estate.

– Stock and Bonds.

– Boats, several vehicles or other items of value.

If there is $50,000 or more in net recoverable equity the SBA will pursue judgment subject to District Counsel concurrence.

We are almost done

• If no judgment is to be filed

– Prepare Wrap Up Report.

– Recommend loan for Charge Off.

Life after Charge Off

• Referral to Treasury for cross servicing

– Outside collections.

– Continued offset.

None of the obligors/guarantors will be eligible for other Government Financing; including student loans or home loans.

Other Tips

• Please do not send e-mails directly to the Loan Specialists. Use fsc.504liquidations@sba.gov for all 504 Liquidation Department correspondence. Actions are assigned a log number and sent to the work queue of the next available LS.

• Please state the SBA loan number and the type of action in the subject line. This will ensure correct coding and assignment of the action.

• Please submit one action for one loan number per e-mail. Multiple actions or multiple loan numbers submitted in one e-mail may cause something to be missed.

• If you have not received a response to your action/request within the 15 business day time frame allowed under 13CFR §120.541 contact the 504 Department Supervisor, Barbara Jung at barbara.jung@sba.gov or call 800-347-0922 extension 2935.

mailto:fsc.504liquidations@sba.govmailto:barbara.jung@sba.gov

504 Servicing Ray Kulina, Assistant Center Director

504 Servicing - Hot Topics

Requesting a servicing action – have your credit memo

complete

Know your authority for servicing actions PCL’/ ACL’s and

Non- PCLP CDC’s (unilateral’ s)

Guarantor Servicing Actions

Subordination Request

Appraisals – release of collateral or cash out

subordinations

Seasoned Loan submittals

• Clear and concise credit memo

• CDC write up to explain the action

• Status of the loan

• Guarantors – any changes?

• Submit your credit analysis

• Any issues? Explain

• What is the impact on the business

• How will this action impact the SBA loan?

Requesting your Servicing Action

SOP 50 55

Chapter 6

Servicing Request

ACL/PCLP

• Unilateral Actions: Need to

submit all actions, we

acknowledge

• Use your POA’s: have these prepared with your submittal

• Have your documentation to

support action saved for SBA

review, if requested

• Commercially reasonable, prudent lending

• Submits all servicing request

to SBA Servicing Center

• Submit credit memo

• Supporting documentation with all request

NON-PCL CDC

What is your CDC’s Authority? Know your responsibility – Each CDC is responsible for servicing all

loans in its portfolio classified in Regular Servicing

SOP 50 55

CH 3 – CDC Responsibility and Authority

• Seasoned Loan = 18 months,

unless default or deferral.

• Guarantors: Release request –

needs documentation and

sound reasoning for request

• Subordinations:

• No cash out: Don’t forget

your existing TPL payoff, no

prepays

• Cash Out – need appraisal

and sound credit memo

Actions to Discuss A Second line of text can go here.

• Appraisals - Required

• 1.) Cash out

• 2.) Partial release

• 3.) Condemnation

(get copy of

appraisal from city,

etc.) if over $10K

• When submitting a

request, make sure you

receive a email

response that we have

your action!!!

• Electronic Loan Files: We

store all files and emails

• Useful Links: • http://www.sba.gov/FresnoCLSC

(General Directory)

• http://www.sba.gov/FresnoCLSC/useful-links#: (Guidance and Forms)

• Emails: Want to know more about SBA's Center in Fresno? Come see us at...

• http://www.sba.gov/aboutsba/sbaprograms/elending/clc/index.html

• Please direct ALL servicing inquiries and actions to FSC.Servicing@sba.gov

• Hint: Goggle SBA Fresno

General Information-Links

http://www.sba.gov/FresnoCLSChttp://www.sba.gov/FresnoCLSChttp://www.sba.gov/FresnoCLSC/useful-linkshttp://www.sba.gov/FresnoCLSC/useful-linkshttp://www.sba.gov/FresnoCLSC/useful-linkshttp://www.sba.gov/FresnoCLSC/useful-linkshttp://www.sba.gov/FresnoCLSC/useful-linksblocked::http://www.sba.gov/aboutsba/sbaprograms/elending/clc/index.htmlblocked::http://www.sba.gov/aboutsba/sbaprograms/elending/clc/index.htmlblocked::http://www.sba.gov/aboutsba/sbaprograms/elending/clc/index.htmlFSC.Servicing@sba.gov

Fresno, CA | June 17-18

What’s Up Next 12:30pm : Central Servicing Agent Forum Sierra Grand Ballroom 1:45pm: Liquidation & Servicing: Post Debenture Servicing & New SOP Highlights Sierra Grand Ballroom 3:00pm: Liquidation: Protective Bids, REO Management & Offers in Compromise Sierra Grand Ballroom 3:00pm: Servicing Update: SOP 50 55, Chapter 6 & Chapter 8 Overview Mount Whitney Room