I’m frequently presented with a situation where my client, a small business owner, has voluntarily given the bank (and by extension, the SBA), a lien on their home. And the key question my client asks is, “will they take my house?” Unfortunately, there is no simple answer, because the outcome of this situation depends on several key factors. Specifically: 1.)Equity in the home 2.)Financial status of borrower (i.e., personal net worth) It’s key to understand that the bank does NOT want to kick you out of your house. In fact, the SBA guidelines for dealing with a defaulted loan with a lien on the borrowers house specifically recommend to the bank that they attempt to work with the borrower to avoid foreclosing on their home. What this means in practical terms is that if you can “settle” with the bank for a sum of money that is approximately equal to what they would receive should they pursue a foreclosure, then the bank will accept the money in lieu of foreclosing and release the lien on the borrowers home. However, accomplishing this is complicated by the fact that any money held by the borrower is frequently subject to the borrowers personal guarantee with SBA bank. The most popular thing we do in these situations is prepare an "OIC" Offer in Compromise for our clients. It allows you to settle for much less than what you owe without effecting your personal credit score.
Just to add a little clarity to your article, an Offer In Compromise is not
required if a borrower only wants to have the lien release from their home.
According the SBA Servicing Matrix, preferred lenders do not need SBA
approval to release collateral, and therefore an OIC is not needed. I see
this most commonly when my client has filed for bankruptcy, but the lien on
their home remains in place (for those who don't know, a personal bankruptcy
doesn't wipe out a lien). If the personal guarantor wants to have their
personal guarantee and a lien on their home release, then is those cases an
Offer In Compromise is the appropriate method.
Jason Milleisen, Founder, Distressed Loan Advisors
DLA | Performer | 6/22/2012 - 11:35 pm
Just to add a little clarity to your article, an Offer In Compromise is not
required if a borrower only wants to have the lien release from their home.
According the SBA Servicing Matrix, preferred lenders do not need SBA
approval to release collateral, and therefore an OIC is not needed. I see
this most commonly when my client has filed for bankruptcy, but the lien on
their home remains in place (for those who don't know, a personal bankruptcy
doesn't wipe out a lien). If the personal guarantor wants to have their
personal guarantee and a lien on their home release, then is those cases an
Offer In Compromise is the appropriate method.
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