January 23, 2013
Here is the new SOP 50 57
By: Ethan W. Smith, Esq. of Starfield & Smith P.C.
On January 22, 2013, SBA released SOP 50 57 which covers Servicing and Liquidation requirements for SBA 7(a) loans. This new SOP, which takes effect on March 1, 2013, combines the servicing requirements previously set forth in SOP 50 50, and the liquidation requirements previously set forth in SOP 50 51 3, and constitutes the first update to the servicing SOP since 1999. A cursory review of this new SOP reveals the following key changes:
The definition of a “seasoned loan” has been modified to mean a loan that is not considered to be an early default loan;
The SBA Environmental Risk mitigation guidelines have been expanded to include processes for loans in regular servicing status as well as loans in liquidation status;
The standards for documenting servicing actions have been standardized in the definition of a “Loan Action Record”, which requires all servicing actions to be documented by the lender or other “independent” party with justifications and written supporting documentation;
When there is a change of ownership that includes new financing to accomplish the acquisition and assumption of an SBA loan, the SBA loan may only be subordinated to the new loan to the extent that the new loan finances improvements to the collateral that will increase its value.
“Financial Hardship” has been defined as the inability to pay for: (i) food and clothing; (ii) out of pocket health care expenses; (iii) housing and utilities; and (iv) transportation;
The guidelines regarding Protective Bids have been modified to include a “prudent lender” exception for circumstances not reflected in the appraisal, but otherwise documented in the loan file;
Federal redemption rights may only be released for 50% of the Recoverable Value after the senior lienholder’s foreclosure sale has been confirmed;
Thresholds for mandatory liquidation of real and personal property collateral have been raised to $10,000 and $5,000, respectively;
Guidelines regarding Offer in Compromise have been expanded to include OIC’s for going concerns;
A “Feasibility Test” has been articulated for use in connection with proposed loan workouts;
CPC expense reimbursements may only be submitted: (i) with the guaranty purchase package; (ii) when the outstanding expenses exceed $5,000 per loan; or (iii) with the wrap-up report;
Lenders are encouraged to explain missing documents and provide estimates of repairs for deficiencies leading to material losses in the guaranty purchase package;
The definition of “Material Loss” has been increased to $5,000 for personal property, and $10,000 for real property collateral; and
Full denial of a guaranty is generally appropriate if a lender uses a suspended or debarred loan agent to prepare its loan application package.
This summary of changes is a quick sampling of some of the more significant changes to the servicing and liquidation guidelines set forth in the new SOP 50 57. Many other changes have been made to the servicing and liquidation guidelines which will be addressed in future articles. In the meantime, prudent lenders will familiarize themselves with the new servicing and liquidation guidelines so they are ready to implement these new requirements by March 1, 2013.
For more information on the new SOP 50 57, or general SBA 7(a) servicing and liquidation issues, contact Ethan at 215-542-7070, or firstname.lastname@example.org.