Tip of the Week
ALL Lenders have the SAME authority to service and liquidate SBA 7(a) Loans
There is still confusion out there of what type of "unilateral authority" lenders have when it comes to taking servicing and liquidation actions on SBA loans. The exclusive PLP unilateral delegated authority has gone away and been replaced with a "standardization" of lender authority; which, actually became effective back in May of 2007 when SBA came out with the updated liquidation rules...but it was so subtle lenders (and some SBA offices...and us) are still missing the point. See 13 CFR 120.536 where it states SBA " standardizes across various loan programs the particular servicing/liquidation actions that require prior SBA approval" (Also see PN 5000-1017, paragraph 6). Then SBA came out with two matrixes for lender authority....one issued from the servicing centers for servicing actions and just recently the one issued from the guaranty purchase center on liquidation actions. SBA tells us that they are putting together a SUPER matrix to consolidate the two that have already been issued, to remove even more confusion that seems to keep cropping up as lenders navigate SBA's requirements.
Consider these servicing action restrictions - Many lenders think they are still relevant, but they are NOT
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The amount deferred must not exceed a cumulative total of 6 months during the life of the loan or a cumulative value in excess of 20% of the original amount of the loan, whichever is less. (page 4-15 of SOP 50 50 4A) - NO LONGER APPLICABLE
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The lender may release collateral up to a cumulative value of 20% of the original loan amount. (page 4-15 of SOP 50 50 4A) - NO LONGER APPLICABLE
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The lender must notify SBA on all actions that they take using unilateral authority. (page 4-13 of SOP 50 50 4A) - NOTIFICATION ONLY REQUIRED FOR CHANGES NEEDED TO UPDATE SBA's DATABASE
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SBA legal counsel must review all 327 actions involving the following activities: workouts, release/substitution of collateral, payment of real estate taxes....(page 4-13 of SOP 50 51 2A) - THIS IS AN INTERNAL SBA PROCEDURE LENDERS DON'T NEED TO ADDRESS
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The lender must submit a liquidation plan to SBA before starting liquidation action on any loan with a principal balance of $50,000 or more at time of default (page 8-9 of SOP 50 51 2A) - THIS IS OBSOLETE
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SBA counsel must review proposed litigation and make a decision on the proper forum to bring an action (page 8-15 of SOP 50 51
2A) - THIS ONLY APPLIES TO NON-ROUTINE LITIGATION AND LEGAL FEES OVER $10,000
AGAIN - the above bulleted requirements are no longer relevant! The SOPs need to be changed to reflect changes are implemented by CFR language (May, 2007) and servicing/liquidation matrixes issued just recently. However, remember, lenders must document the justifications for their decisions and retain such justification and documentation in their file for future SBA review to substantiate that the actions taken by the lender were PRUDENT, commercially reasonable and complied with all Loan Program Requirements. MORE responsibility has been shifted to the lender to make sure the decisions made are prudent, but SBA assures us that the standards for review by SBA (audit team and Herndon guaranty purchase team) will be based on "materiality" - and it is not their mission to be in a "gotcha" mode.
Stamped approvals for unilateral actions are NO LONGER issued by SBA. When taking action that falls within your unilateral authority (check the matrixes), you are encouraged by SBA to notate your file with a statement such as "this action was taken pursuant to lender's unilateral authority". Even though the current matrix indicates the lender should attach the matrix in each and every file, it is our understanding that when SBA updates the matrix soon that guidance will be taken out. The lender should just explain the business reason for the action taken so that a third party reviewer may conclude that the action was prudent and commercially reasonable. Also, include any other supporting information in the file.
Be looking for SBA to issue a procedural notice to come out SOON that makes this issue more clear (not so subtle) so there is no question of what a lender's responsibilities are (the SOP 50 50 and 50 51 really need to be revised and we know SBA is working diligently to make that happen).
Making loans with a government guaranty requires that extra "wrapper" of requirement and responsibility and we know sometimes the process can get tedious. Taking the "curves out of the road" for SBA lenders and CDCs is our business. Building good written policies and procedures that address your approach to SBA lending is a smart idea (using a good "road map"). If you need assistance in writing procedures that effectively match up to SBA's requirements or you just want to update the ones you already have in place, please call us so we can help you through the process.
Take the Right Approach.
Karen McHugh and Brian Burke
SBA Access ©2009 - All Rights Reserved
All content is copyrighted and unauthorized use is strictly prohibited. If you would like to quote any part of this text, email bburke@sbaaccess.com or kmchugh@sbaaccess.com for permission.
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