It makes little sense, since the SBA has a definitive Offer in Compromise program; we start it frequently and resolve delinquent loans very effectively. There are procedures, guidelines, requirements and a resolution process. Works. It’s often difficult to navigate, cumbersome to use, but since we understand the process well and have had a lot of practice with it, and are very successful with it, we go for it.
Not so with Katrina disaster loans or other disaster loans that go into default.
For some reason, they haven’t received the memo. They are unaware of any Offer in Compromise process and act as if they are not SBA guaranteed loans. They cannot be solved. We know that we have tried repeatedly and got nowhere each time.
The SBA has apparently determined in its own infinite wisdom that there is a significant difference between directly lending money given to them by Congress for disaster relief and loan guarantees made through traditional banks. For some reason, this is enough of a difference for there to be an offer-in-compromise procedure for secured loan issuances through banks and direct loan issuances directly from the SBA.
Why there is a difference, I don’t know. I can’t even fathom the logic behind such a demarcation, but there is.
A defaulted disaster loan goes directly to the Department of Justice, the US Treasury and is handled by an Assistant US Attorney and prosecuted as if the default were a crime.
Now, in fact, we have taken the defense of such a situation through the Federal District Court system and we have litigated it before a Federal District Judge and we have obtained a great forgiveness, our typical forgiveness of 90% on a $1.2 million loan. of dollars, however, the sad part of this is the huge legal fee that the borrowers had to pay for such justice. It took years and a small fortune for legal fees that could have been used to reduce debt, but instead were used to prove that the borrowers were broke and out of work and couldn’t afford to pay another penny. In fact, the payment was structured over several years.
Picture the scene, your home and business flattened, your entire community gone, and the SBA on the scene working from a mobile office, offering cash on the spot to rebuild. The rebuild didn’t go well, it didn’t bring the business or the market back, and the revenue was gone seemingly forever, and then the second disaster hits, the SBA comes collecting their refund, and even though the borrower never recovered from the disaster, they lost everything they had. . , the United States Treasury is going to collect no matter what.
Despite the facts and despite the reality that the SBA has a debt forgiveness plan, disaster loans are not included in this process. Let’s hit borrowers again, says SBA, collect no matter what… and they do… no matter what, and until you get to US Federal District Court, no settlements available . We know. We are defending a handful and we are not winning. We are losing.