SBA financing sources
 

 

After the SBA Offer In Compromise and SBA modification, SBA lien releases are the next most popular service that potential clients come to me for. There are usually two types of lien release scenarios:

1) The borrower has recently defaulted on their SBA loan, and they want to know if the SBA is going to foreclose on their home.

2) The individual has filed, and been discharged from, chapter 7 personal bankruptcy, but the SBA lien still remains on their home and the individual wants to know if the SBA will release their home.

The answer to both questions is basically the same. If the SBA (or the SBA lender) feels that there is equity in the home, there is a chance that they will foreclose in order to convert that equity to cash. The decision to foreclose is largely a business decision, meaning that if it makes financial sense to foreclose, they'll do it. For example, if your home is worth $500,000 and you have a 1st mortgage of $100,000, and the SBA has a 2nd lien to secure their loan, you can count on a foreclosure since there is $400,000 in equity in the home. The lender who services the loan for the SBA is required to liquidate that piece of collateral if some alternative arrangement cannot be worked out. If they don't foreclose, they risk losing part or all of the SBA guarantee.

Sometimes, the situation is not quite as clear. Let's say your home is worth $300,000 and your first mortgage is $210,000. First of all, it's usually assumed that your home would sell at a 20% discount, so the value the lender would work off would be $240,000 (80% x $300,000 = $240,000). Based on this math, there is about $30,000 in equity in the home. You are now in nebulous territory. The lender would need to spend $210,000 to pay off the first PLUS the costs of foreclosure. Some lenders would foreclose in that situation, some wouldn't.

So How Do I Get My Lien Released?

If your home HAS EQUITY (as defined above), you will need to make an offer for an amount close to the amount of equity in the home. Of course, how much equity you have is debatable, and trust me, it will be debated. When you make your offer, it's reasonable to look it from their perspective. In other words, take 80% of the fair market value, then subtract costs of foreclosure and existing liens. Your offer should be somewhere in that neighborhood.

If your home DOES NOT HAVE EQUITY, you are probably not in immediate danger of foreclosure. However, just because your home doesn't have equity in it doesn't mean they will release your home. Many lenders say that they'll just wait until one day when you've paid your mortgage down, and the value has gone up, then foreclose at that time. Most people don't want to take a "wait and see" approach, and there is certainly no reason why you can't approach the lender/SBA and make a lien release offer. In most cases, if there is no equity whatsoever, an offer of a material sum will be considered.

Distressed Loan Advisors ( http://www.JasonTees.com ) offers expert advice about dealing with SBA Loan Default, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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