Small Business Administration, § 120.524 When is SBA released from liability on its guarantee?
Summary
Section 120.524 of 13 CFR lists events, numbered (1) through (10), that release SBA from liability on a loan guarantee, in whole or in part. They include a lender's material failure to comply with loan program requirements, failure to make, close, service or liquidate a loan prudently, failure to disclose or misrepresentation of a material fact, failure to pay the guarantee fee, failure to request purchase within 180 days after maturity, and the borrower paying the loan in full. If SBA determines at any time that one of these events occurred, it is entitled to recover moneys paid on the guarantee plus interest, and the lender remains responsible for servicing and liquidation until SBA honors its guarantee in full. The page also prints Sections 120.522, 120.523 and 120.530, on accrued interest, the earliest uncured payment default and deferment of payment.
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Small Business Administration § 120.524
uncured payment default, or the rate § 120.524 When is SBA released from li-
in effect at the time of purchase (where ability on its guarantee?
no default has occurred). (a) SBA is released from liability on
a loan guarantee (in whole or in part,
§ 120.522 Payment of accrued interest within SBA’s exclusive discretion), if
to the Lender or Registered Holder any of the events below occur:
when SBA purchases the guaran- (1) The Lender has failed to comply
teed portion.
materially with any Loan Program Re-
(a) Rate of interest. If SBA purchases quirement for 7(a) loans.
the guaranteed portion from a Lender (2) The Lender has failed to make,
or from a Registered Holder (if sold in close, service, or liquidate a loan in a
the Secondary Market), it will pay ac- prudent manner;
crued interest at: (3) The Lender’s improper action or
(1) The rate in the note if it is a fixed inaction has placed SBA at risk;
rate loan; or (4) The Lender has failed to disclose a
(2) The rate in effect on the date of material fact to SBA regarding a guar-
anteed loan in a timely manner;
the earliest uncured payment default,
(5) The Lender has misrepresented a
or of SBA’s purchase (if there has been
material fact to SBA regarding a guar-
no default). anteed loan;
(b) Payment to Lender—(1) For loans (6) SBA has received a written re-
approved on or after May 14, 2007. SBA quest from the Lender to terminate the
will pay up to a maximum of 120 days guarantee;
interest to a Lender at the time of (7) The Lender has not paid the guar-
guarantee purchase. antee fee within the period required
(2) For loans approved before May 14, under SBA rules and regulations;
2007. The regulations applicable to the (8) The Lender has failed to request
amount of interest that SBA will pay that SBA purchase a guarantee within
to a Lender upon loan default that 180 days after maturity of the loan.
were in effect immediately prior to However, if the Lender is conducting
this date will govern such loans. liquidation or debt collection litigation
(c) Payment to Registered Holder. SBA in connection with a loan that has ma-
will pay a Registered Holder all ac- tured, SBA will be released from its
crued interest up to the date of pay- guarantee only if the Lender fails to
ment. request that SBA purchase the guar-
antee within 180 days after the comple-
[61 FR 3235, Jan. 31, 1996, as amended at 72 tion of the liquidation or debt collec-
FR 18361, Apr. 12, 2007] tion litigation;
(9) The Lender has failed to use re-
§ 120.523 What is the ‘‘earliest uncured quired SBA forms or exact electronic
payment default’’? copies; or
The earliest uncured payment default (10) The Borrower has paid the loan
is the date of the earliest failure by a in full.
Borrower to pay a regular installment (b) If SBA determines, at any time,
of principal and/or interest when due. that any of the events set forth in
Payments made by the Borrower before paragraph (a) of this section occurred
a Lender makes its request to SBA to in connection with that loan, SBA is
entitled to recover any moneys paid on
purchase are applied to the earliest
the guarantee plus interest from the
uncured payment default. If the in-
Lender. In the exercise of its rights,
stallment is paid in full, the earliest
SBA may utilize all legal means avail-
uncured payment default date will ad- able, including offset and judicial rem-
vance to the next unpaid installment edies.
date. If a Borrower makes any payment (c) If the Lender’s loan documenta-
after the Lender makes its request to tion or other information indicates
SBA to purchase, the earliest uncured that one or more of the events in para-
payment default date does not change graph (a) of this section occurred, SBA
because the Lender has already exer- may undertake such investigation as it
cised its right to request purchase. deems necessary to determine whether
301
§ 120.530 13 CFR Ch. I (1–1–25 Edition)
to honor or deny the guarantee, and diligently than for their non-SBA port-
may withhold a decision on whether to folio, and in a prompt, cost-effective
honor the guarantee until the comple- and commercially reasonable manner,
tion of such investigation. consistent with prudent lending stand-
(d) Any information provided to SBA ards, and in accordance with Loan Pro-
by a Lender or other party will not gram Requirements and with any SBA
prejudice, or be construed as effecting approval of either a liquidation or liti-
any waiver of, SBA’s right to deny li- gation plan or any amendment of such
ability for a guarantee if one or more a plan. Lenders and CDCs that do not
of the events listed in paragraph (a) of maintain a non-SBA loan portfolio
this section occur.
must adhere to the same prudent lend-
(e) Unless SBA provides written no-
ing standards followed by commercial
tice to the contrary, the Lender re-
lenders that liquidate loans without a
mains responsible for all loan servicing
government guarantee. They are also
ad liquidation actions until SBA hon-
ors its guarantee in full. to operate in accordance with Loan
Program Requirements and with any
[61 FR 3235, Jan. 31, 1996, as amended at 72 SBA approval of either a liquidation or
FR 18361, Apr. 12, 2007; 82 FR 39503, Aug. 21, litigation plan or any amendment of
2017]
such a plan.
§ 120.530 Deferment of payment. (c) Absence of actual or apparent con-
flict of interest. A CDC must not take
SBA may agree to defer payments on
any action in the liquidation or debt
a business loan for a stated period of
time, and use such other methods as it collection litigation of a 504 loan that
considers necessary and appropriate to would result in an actual or apparent
help in the successful operation of the conflict of interest between the CDC
Borrower. This policy applies to all (or any employee of the CDC) and any
business loan programs, including 504 Third Party Lender, associate of a
loans. Third Party Lender, or any person par-
ticipating in a liquidation, foreclosure
§ 120.531 Extension of maturity. or loss mitigation action.
SBA may agree to extend the matu- (d) SBA rights to take over servicing or
rity of a loan for up to 10 years beyond liquidation. SBA may, in its sole discre-
its original maturity if the extension tion, undertake the servicing, liquida-
will aid in the orderly repayment of tion and/or litigation of any 7(a) or 504
the loan. loan. If SBA elects to service, liquidate
and/or litigate a loan, it will notify the
§ 120.535 Standards for Lender and relevant Lender or CDC in writing,
CDC loan servicing, loan liquida- and, upon receiving such notice, the
tion and debt collection litigation. Lender or CDC must assign the Loan
(a) Service using prudent lending stand- Instruments to SBA and provide any
ards. Lenders and CDCs must service needed assistance to allow SBA to serv-
7(a) and 504 loans in their portfolio no ice, liquidate and/or litigate the loan.
less diligently than their non-SBA SBA will notify the Borrower of the
portfolio, and in a commercially rea- change in servicing. SBA may use con-
sonable manner, consistent with pru- tractors to perform these actions.
dent lending standards, and in accord-
ance with Loan Program Require- [72 FR 18361, Apr. 12, 2007]
ments. Those Lenders and CDCs that
do not maintain a non-SBA loan port- § 120.536 Servicing and liquidation ac-
tions that require the prior written
folio must adhere to the same prudent consent of SBA.
lending standards for loan servicing
followed by commercial lenders on (a) Actions by Lenders and CDCs. Ex-
loans without a government guarantee. cept as otherwise provided in a Supple-
(b) Liquidate using prudent lending mental Guarantee Agreement with a
standards. Lenders and Authorized CDC Lender or an Agreement with a CDC,
Liquidators must liquidate and con- SBA must give its prior written con-
duct debt collection litigation for 7(a) sent before a Lender or CDC takes any
and 504 loans in their portfolio no less of the following actions:
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