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Denials of Liability & Repairs

SBA’s general policy for guaranty purchases is to reach a fair decision based on a thorough review of lender’s purchase request and all relevant documentation. If a lender has been deficient in its handling of a loan, the SBA office processing the purchase will attempt to reach an equitable resolution with the lender, which may involve the lender agreeing to a monetary adjustment in the amount of SBA’s guaranty (referred to by SBA as a "repair"). However, SBA may consider a denial of its liability under its guaranty or litigation to recover funds SBA already paid under its guaranty to the lender (or secondary market holder) if the lender is not negotiating in good faith, the lender is unwilling to agree to a repair that reflects the harm caused to the SBA, or the lender’s actions are sufficiently serious that a repair would be inappropriate. SBA regulations at 13 CFR §120.524 describe when SBA will be released of liability on a loan guaranty. Lender also should consult the guaranty purchase procedures in SOP 50 50 4A, Chapters 9 and 10, and SOP 50 51 2A, Chapter 13.

Expiration of guaranty after maturity: If the lender fails to request purchase within 120 days after loan maturity, SBA is not legally obligated to purchase the guaranty. 13 C.F.R. § 120.524. Under certain circumstances, SBA may permit reinstatement of the guaranty and extension of the maturity (thereby extending the period during which the lender may request purchase). For example, reinstatement may be appropriate if the lender was actively servicing or liquidating the account with SBA knowledge or concurrence, and inadvertently failed to timely request purchase or extend the loan maturity.

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