■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

February 27, 2012

Alison RindArnold SpevackJeffrey Sherman

Lerch, Early & Brewer, Chtd.

www.lerchearly.com

The New SBA SOP 50 57 7(a) Loan Servicing & Liquidation

© Lerch, Early & Brewer, Chtd. 2012 www.lerchearly.com

Introduction Review of Ch. 1-26 Questions

Overview

2

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Introduction

3

Replaces SOP 50 50 (Servicing) and 50 51 (Liquidation)

Applies to 7(a) Loans only Effective March 1, 2013 Leaves More to Lender’s

Judgment Matrix Needs Updating

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 1: Performance Standards and Exceptions to Policy Lender must service in

diligent, conflict of interest and preference free, commercially reasonable manner

Use own procedures so long as not inconsistent with SOP

If SOP contains “must”, then any deviation must be treated as exception to policy

4

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 2: Definitions

Definitions specific to this SOP

Terms Capitalized throughout SOP

New Defined Terms Added

5

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Defined Terms

AppraisalComputer Tracking System

Loan Action Record

Loan FileMaterial Loss

Seasoned Loan

RepairService Request

Site Visit Report (comprehensive)

Supporting Documents

6

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 3: Lender’s Responsibility and Authority Incorporates List of Activities

simliar to matrix Sometimes contradicts

Matrix – follow SOP 50 57 All actions to be

documented in Loan File or Computer Tracking System

7

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 4: Loan Payment Administration

9

Principal Interest Expens

es

If Loan in liquidation, all payments applied:

Unless payments are under

workout or court ordered agreement (new)

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 5: Environmental Risk Management

Environmental Investigation Process for loans in liquidation

Remedial Actions by Lender Taking Title to Contaminated

Property

10

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 6: Servicing Requests

Must Enter All Actions Loan File or Computer

Tracking System Obtain supporting

documentation 2 yrs federal tax returns

now required How to obtain SBA approval11

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 7: Modification of Note

Obtain secondary market approval if loan is sold on the secondary market

Alternatives if approval not granted

Extensions of Maturity Date

12

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 8: Modification of Collateral Requirements

Guidance for: Subordination Substitution Release of Lien Release of Borrower or

Guarantor Release of Condemnation

Proceeds13

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 9: Insurance Coverage

Review Flood Coverage for every service request

Responsibility for Maintaining Insurance

Forced Placed Insurance Release of Proceeds Escrow Account

14

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 10: Modification of Management Covenants

Any modifications should be consistent with servicing goals

Compensation, Dividends, Fixed Assets – Seasoned Loans

Standby Agreements No modification if part of equity

injection unless permitted by SOP 50 10

15

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 11: Assumption/Assignment or Sale of Loan New Requirement Add due on death or sale

(prohibits future assumptions)

Unilateral Authority SBA must approve if Borrower or

Guarantor released No installment sales

16

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 12: Deferments

Temporary Solution to Temporary Problem

One time 3 month deferment if loan sold on secondary market

Up to 6 Consecutive Months- Loan not sold on secondary market

Possible additional deferments if properly documented

17

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 13: Delinquent Secured Senior Loans

Guidance for Strategies when other senior lien is in place

Protective Bids No Bids Less than 10% liquidation

value18

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 15: Site Visits

Follow Procedures (very specific)

Required unless loan is unsecured or aggregate recoverable value of personal property collateral

19

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 16: Workouts

New Guidance Provided If not in place in reasonable time

(i.e., 60 days), move forward with enforcement

Consideration to be provided Options Required Provisions SBA approval only if compromise or

other action taken requiring SBA approval

20

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 17: Real Property Liquidation

General Requirements Receiverships Only in exceptional

circumstances Litigation plan needed

21

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 18: Personal Property Liquidation

Guidelines Provided Private Sales vs Public Sales Timeframe Abandonment

22

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 14: Classifying Loans in Liquidation

Not mandatory “should” language included

Demand letters Application of payment

requirements for loans in liquidation

Liquidation Plans Removal from Liquidation

Status

23

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 19: Acquired Collateral

Ownership Responsibilities Expenses Leases (generally not

allowed)

24

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 20: Offer in Compromise

Multiple obligors Going Concern Review of Offer Payment Terms

25

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 21: Litigation

Litigation Plans Approval of Attorney’s Fees Bankruptcy Proceedings

26

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 22: Expenses and Recovery

Expenses in excess of $5,000 Contents of Request

Packages

27

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 23: Loan Guaranty Purchase Request

Interest Rate and Payment of Interest

Requirements 10 Tab System Practice Tips

28

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 24: Denial of Liability on 7(a) Guaranty

Repairs and Denials Examples Eligibility Early Default IRS Verifications Collateral Cash Injection

29

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 25: Inspector General Referrals

Duty to Report Examples Fraud in application or

closing Misuse of proceeds Lender misconduct SBA employee misconduct

30

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Ch. 26: Charge Off and Wrap Up Procedures

When appropriate Wrap up report Treasury Referral Post Referral Servicing by

Treasury Notifications required

Bankruptcy or litigation31

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Questions

32

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Speakers

33

Alison Rind is an SBA lending attorney at Lerch, Early & Brewer who represents commercial lenders in loan transactions and other commercial matters. These include participants in SBA and other government-guaranteed lending programs.

(301) 657-0750awrind@lerchearly.com

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Speakers

34

Arnie Spevack is a commercial lending attorney at Lerch, Early & Brewer who represents businesses, lenders and borrowers in financings, closings, negotiations and in the courts.

(301) 657-0749adspevack@lerchearly.com

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Speakers

35

Jeff Sherman is a creditors' rights and bankruptcy attorney at Lerch, Early & Brewer who advocates for creditors and debtors of all types, trustees, committees and third parties affected by bankruptcy proceedings, including related bankruptcy and non-bankruptcy litigation.

(301) 841-3843jmsherman@lerchearly.com

© Lerch, Early & Brewer, Chtd. 2013 www.lerchearly.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

For more information

36

Lerch, Early & Brewer, Chtd.3 Bethesda Metro Center, Suite 460

Bethesda, MD 20814(301) 986-1300

www.lerchearly.com

Thank you for your participation