Water-cooler Chat on SBA Liens: Top 4 Questions & Answers

Are you feeling the pinch because you’re having trouble with the Small Business Administration (SBA) liens after taking an SBA 7a loan? I can see how you’re struggling like a ship stuck in a squall. Well, I’m here to help you navigate these choppy waters.

Understanding the SBA Liens

You see, the whole situation boils down to collaterals. When you took that SBA 7a loan, did you remember putting up your personal residence as collateral? That might have seemed a minor trade-off at the time, but now with a defaulted business, this lien on your home has become a headache the size of the Independence Day fireworks display.

SBA Lien: Binding Promises and Home Sweet Home

The SBA’s guidelines, also known as Standard Operating Procedures (SOPs), basically just lay down the ground rules. If you owned a business and needed a loan, the SBA asked you to sign a personal guarantee. They wanted to make sure the bank lending you cash would have something to fall back on, just in case. Unfortunately, for many who default on a loan, it often involves putting their home on the line.

Those SOPs require the bank to collateralize the loan as much as possible, securing it against something real and tangible. If your business assets have a liquidation value of $20,000 but your house has equity of $100,000, the bank, backed up by the SBA, will register your beloved four-walled paradise as collateral.

And then there’s the technical jargon! In SBA parlance, a loan is considered “fully secured” if it’s backed by security interests in assets with a “liquidation value” that equals the loan amount. The “liquidation value” is what the asset could be sold for, after fees and other costs, should the business go belly-up.

How the SBA Lien Hangs Over Your Head

Let’s say your business derails and isn’t able to pay back the loan. Now, the bank jumps into action, liquidating any collateral like your home with a “Recoverable Value” of $10,000 or more, unless there’s a compelling reason not to.

Foreclosure looms over your home if it was collateralized for the SBA loan. The bank needs to figure out the best way to go about this. They have two main options; either they press charges against you in court (a.k.a. judicial foreclosure) or take the less complicated route (non-judicial foreclosure). This choice of foreclosure type depends on varying state laws regarding properties and liens.

Good Faith and A Silver Lining for Homeowners

However, not all is gloom. The sky isn’t falling yet! The SBA does recommend that lenders make a good faith effort to reach an agreement covering release of the lien for consideration and compromise before initiating a foreclosure action against your primary residence. Banks that comply with applicable state or federal laws in working with homeowners prior to the start of foreclosure action are usually seen as meeting this criterion.

The Lifesaver: Saving Your Home

God willing, there’s still a way for you to safeguard your home! The SBA has provisions that help you do it, albeit with a price. You’ll need to ensure that what you offer to pay is as close to or greater than the “Recoverable Value”.

Got an SBA Lien issue? Reach out to Lawscape and Lawscape

If this feels like quicksand and you’re in the crosshairs of an SBA loan default, it’s time to get some useful professional advice. And who better than our knowledgeable SBA attorneys at Lawscape? We’ve helped our clients avoid bankruptcy, home foreclosure, and successfully negotiated with Treasury and SBA debts over the years. We’ve fought many a monsters like AWG Hearings, Treasury Offset Program Resolutions, Cross-servicing Disputes, etc, and lived to tell the tales!

Our stellar lawyers are authorized by the Agency Practice Act to represent individuals nationwide in front of the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service. Help is just a phone call away at 1-212-460-5004.