504 loans issued by a bank or development company are typically for a
business with real estate attached to the loan. In most cases, there is
multiple Banks or CDCs involved who lent the borrower (s) money. In a default
situation, the Bank must follow the SBA guidelines and the assets of the
business must first be liquidated. The money of the sale will be applied to
the balance owed, and then the building is sold in a foreclosure format. That
money will also be applied to whoever is held in first position. Any extra
money will be applied to any secondary lender such as the CDC which is
typically the SBA. Any short fall left over comes after the guarantors
individually via the personal guarantee signed on the initial loan documents.
The borrower (s) are then left with an option to do whats called an Offer in
Compromise. This is an alternative to declaring bankruptcy, and allows the
debt to be written off for a fraction of the monies owed. It is very
important to make sure that the OIC package is prepared and presented
correctly. I can't stress enough how important it is to consult with an
expert who has experience in preparing and negotiating OIC packages with the
SBA. Most attorneys are not familiar with dealing with financials, and
especially SBA debt. There is a few experienced firms out there other than
myself at Bridge Management Consulting who is very good at negotiating SBA
settlements and please feel free to contact me anytime with questions or
concerns with any SBA default scenarios. If an OIC package is not submitted
or gets denied, the loan gets passed to the US Department of Treasury, and
that is a nightmare! Ryan Lineham - Ryan@BridgeMgt.com - Sean Rosser - Bridge
Management Consulting
It's also worth noting that in most cases, the only asset securing a 504 loan
is the commercial real estate. This means that once the building is sold, an
offer in compromise is possible. It is very important to note that the offer
in compromise comes AFTER the sale of the building. Many people want to
settle their personal guarantee before or in conjunction with the short sale,
but as a consultant who handles only SBA workouts, I can tell you that the
SBA will unfortunately not agree to such a thing. My website site has 75+
articles about SBA workouts, all of which were authored by me.
Jason Milleisen, Founder, Distressed Loan Advisors
Ryan, I agree with your comments regarding resolution of these loans. I am
only aware of three firms that specialize in this type of work. Certainly
your company comes up and with a background in banking, you have that
perspective. We have been doing this type of work for more than 30 years and
approach it from a legal/administrative process perspective. There is also a
firm on the east coast that does this work.
As to the actual process, not all loans including real estate are 504's, but
for those that are, the process described is quite accurate. And with the
continuous updates that the SBA has been making lately to the process, it is
imperative that a borrower work with a firm that is doing this work every
day.
I also would like to say that it is important to stay actively involved in
the process. Too often borrowers mistake silence on the part of the lender or
SBA as meaning the problem has gone away. This could not be further from the
truth. The file is likely on its way to the Treasury Department, the
collection agency for the SBA. When it gets to that point, our job in
resolving these loans is much more difficult. Act early and get a resolution
that lets you move forward with your life!!!
John C. Homan, J.D.
Director of Legal Affairs
R.D. Cessna & Associates
email: john@rdcessna.com
phone 760-789-6823
DLA | Performer | 4/17/2013 - 9:48 pm
is the commercial real estate. This means that once the building is sold, an
offer in compromise is possible. It is very important to note that the offer
in compromise comes AFTER the sale of the building. Many people want to
settle their personal guarantee before or in conjunction with the short sale,
but as a consultant who handles only SBA workouts, I can tell you that the
SBA will unfortunately not agree to such a thing. My website site has 75+
articles about SBA workouts, all of which were authored by me.
John@RDCessna | Window Shopper | 2/20/2013 - 12:03 pm
only aware of three firms that specialize in this type of work. Certainly
your company comes up and with a background in banking, you have that
perspective. We have been doing this type of work for more than 30 years and
approach it from a legal/administrative process perspective. There is also a
firm on the east coast that does this work.
As to the actual process, not all loans including real estate are 504's, but
for those that are, the process described is quite accurate. And with the
continuous updates that the SBA has been making lately to the process, it is
imperative that a borrower work with a firm that is doing this work every
day.
I also would like to say that it is important to stay actively involved in
the process. Too often borrowers mistake silence on the part of the lender or
SBA as meaning the problem has gone away. This could not be further from the
truth. The file is likely on its way to the Treasury Department, the
collection agency for the SBA. When it gets to that point, our job in
resolving these loans is much more difficult. Act early and get a resolution
that lets you move forward with your life!!!
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