Can you strip off a subordinate SBA lien or mortgage to sell the property

Assuming the SBA loan was not used to purchase the property, but is a subordinate loan attached to the property by an agreed to mortgage or as an attachment because of a breach of the loan payments, it appears to many that one cannot sell the property because the subordinate lien cannot be satisfied. The property is not worth the first or second mortgage and the attached SBA note is completely underwater, upside down.

What can the borrower/owner of the property do, especially if he wants o sell or refi…seems blocked.

But it isn’t.

There is a process available and a strategy that allows the owner to sell or refinance the property with the SBA being willing to release the mortgage/lien so this transaction can occur.

It requires a little cooperation, and a commitment that the borrower receives none of the sale or refinance consideration. All proceeds must be distributed in he order of priority, but it can be done.

Call if you need help…413-584-2581 Norm will arrange a tele-conference

It is time to fire some of your clients!

We talk about the need to downsize to accommodate reduced revenues and increased overhead, and frequently we  focused on reducing payroll,  negotiating a discount on rent, and reducing other controllable overhead items, all good ideas, actually necessary strategies in today’s changing economy.

However we seldom talk about the need to reduce our client base, sounds crazy. Why would we ever want to do that, especially when confronting reduced revenues?

If anything we want to increase the number of clients we have, not reduce the number.

Is a simple concept most often overlooked but a very necessary evaluation and  an effective internal adjustment that will yield great results.

Over time, in our effort to build sales revenues, one frequently ignores the profit earned from each sale and from each customer, focusing more on gross revenue, believing the higher the better.

In our drive to build gross revenues we forget net profit is far more important.

Thus we sometimes sell at the lowest price to small volume clients or we give away shipping charges, or we sell to clients who pay in 120 days, bounce checks and always owe you as they order every 90 days. Sometimes we have sales and extend the sale price indefinitely, sometimes we have sales and only manage to sell the same amount to the same clients but at lower prices achieving no gain,  and on it goes. There are many ways we erode our profit, yet our cost of goods and overhead remains the same.

This reduces our net profit  which is damaging to our well being and we do it to ourselves.

So here is the fix. Review your clients one at a  time and evaluate whether or not  each one is worth keeping as a client. When you discover prices too low, or net profit being eroded for any reason, call the client explain you must adjust appropriately as they will no longer be shipped at the previous terms and conditions. If they reject the changes good let them go, If they stay with new terms and conditions even better.

You are unlikely to make more profit selling more goods or services at low margins, too low to yield adequate net profit. It does not work. In fact you will find out that most of your profit comes from a small percentage of your clients and if these were the only ones you had, you could downsize and increase profitability simultaneously.

Review your client base and the sales you are making  to each one, see what it looks like and then make the appropriate decisions one at a time.  You may be able to increase profit and reduce payroll This is quality downsizing.

Do it, it works.

Do not hide out. The importance of effective communication and follow through wth your banker.

I was talking to a banker yesterday representing a sizable bank with a dedicated workout department, Special Assets they call it, and she commented about a particular borrower whom they were reluctant to give us a workout opportunity, let alone a resolution. I went to speak with her personally as her position was quite resistant and thus unworkable, something I had to overcome.

After talking, she explained that this borrower refused to talk with us, would not answer his calls, would not provide appropriate paperwork, financial reports or even an explanation of his intent. The file had been passed around the room to many different workout officers and no one could reach him or gain any level of participation and cooperation. They had offered workout opportunities and wanted to help him resolve his issues and default with them, but to no avail.

Thus they commenced foreclosure. Upon the borrowers receipt of foreclosure notice, he then reached out and called the bank. Understandably, from their perspective, although unrealistic and quite emotional, they now would not speak with him and referred him to their council who simply explained he was being foreclosed upon.

At this point he sought out professional help, us and I got involved.

I was getting long with the banker and she further explained that if the borrower refuses to cooperate, when they then enter the legal process they too will now refuse to cooperate, when he finally surfaces, which he inevidably will. She explained that the workout deal they would have done before, which was very reasonable, is off the table, not available because of his failure to cooperate when given an opportunity. Their intent was to now grind him down and take what they can get, even greater losses.

Apparently their deal that was reasonable before was no longer acceptable to them now because they were emotionally upset and wanted to punish the borrower even at their own loss. Sounds silly yes but very true. Bankers are also emotional beings as so many business people are. Emotion or ego clouds the decision making process and supports bad decisions, not good ones.

They preferred to now punish the borrower rather then finally settling. Not unusual, I spend much time calming the anger of disgruntled lenders and workout officers, and they all say the same thing, they are angered by the avoidance and lack of cooperation and participation thus they withdraw their reasonableness and prefer to simply make them pay, despite their inability, so they foreclose and liquidate spending more and getting less, all in the name of justification because the borrower ignored them.

Silly? Yes! True? Yes!

More fortunately I am able to deal with this as I spend the time to create trust and respect between myself and the banker, creating a working relationship and restoring the lost trust the borrower destroyed.

The net result was and always is that while the banker remains angry with the borrower, the banker is NOT angry with me and I therefore can manage to move them back into a negotiating stance as I, the third party expert, am reasonable, trustworthy, respectful,  cooperative and committed to the banks success, and my clients debt workout and resolution.

It works well and supports two conclusions.

1. Communicate effectively and respectfully,  and timely, failure to accomplish this simple task is fatal.

2. No matter what, the banker usually has some ire with the defaulting borrower as in their eyes the borrower breached his/her word. We, as third parties, can  gain much more traction and respect then the borrower can and thus we are more successful in gaining the results we need.

All to frequently we hear borrowers in default exclaim “…but I offered them that long ago and they refused and now they accept  it from you? We even achieve deeper discounts, how does that happen?”

Simple, We have credibility, and treat tem respectfully and effecively, the defaulting borrower does not.

The lesson, respond intelligently and effectively, do not hide,  or fail to cooperate. Hire professionals to represent you, we will do a better job and achieve better results.

It works, do it.

The Department of Justice, better called the Department of non-justice.

Yes, on we go to the Department of Justice. US Attorneys, here we come.

Many of you in default  of SBA guaranteed loans or disaster loans will eventually be forced to deal with the Department of Justice, the collection arm of government agencies.

It is not urban legend. It is the truth. In the end, when nothing worked, the IRS and the SBA resort to the Department of Justice and its Attorneys to implement collection procedures for collecting debts owed to the US government. Now there is a problem for certain as they have an unlimited budget and you do not.

No, it is not time to flee the country. You will not be arrested and prosecuted as Al Capone was; you are not a criminal and will avoid prosecution. There may be a trial, a civil trial, but that too is highly doubtful, as these matters do get settled.

Unfortunately, if not settled early, and for sums that will probably be considered unaffordable, unrealistic, unreasonable, the procedures get rather dicey. The US Attorneys are tough, unyielding, arrogant, and obnoxious at times, unreasonably demanding, sometimes even silly in their conclusion and demands and unfortunately unwilling to bend…at all, so they want you to believe. It is a difficult path but one we win at.

Currently we are representing three borrowers whom have negative net worth, are ‘upside down’, have limited revenues , some income property real estate, all of which yield a negative net worth, and are frankly unable to pay their bills, let alone their debts. They have been subject to a few years of bickering and posturing with the US Attorney, and there is a pre-trial settlement conference being attempted this Friday, to which I am attending to attempt to negotiate a settlement before a trial date is set.

Following Federal law, the two sides have submitted  required settlement offers. Our side submitted a collective combined offer of $120,000 all borrowed money from friends and families. Reasonable, respectable and well beyond their collective net worth, the men owe over $1 million.

Here is where it gets strange, silly, actually as it is a preposterous position that is indefensible and frankly, in my eyes, a break from all reality, not to be taken seriously and a mockery of the justice system. Despite complete disclosure of all financial records, indicating a negative net worth and insufficient  income to service basic living expenses, the US Attorney insists that each borrower is capable of paying back over 1 million dollars each!  Thus their settlement offer was full payment!

 

Ye gads! I do not understand this at all. Is the justice system really being served in any meaningful way with a demand of one million dollars to satisfy the offer to settle component required by the court system despite a total and complete inability to repay even one penny without resorting to funds borrowed from friends and family which are unlikely to ever be repaid? Is this serving the purpose intended by the court system to promote resolution?

Is this what our Justice Department believes is appropriate and effective strategies and collection practices?  I understand bargaining, and I get the need for the Justice department to collect as much as they can, but I do not understand how in the face of reasonable people presumably acting in good faith and committed to upholding the system, that ridiculous, preposterous, demands are made by The Department of Justice that defy any pretense of reality. What has possibly been achieved here and why would people with sworn oaths to uphold the Constitution of our country resort to bold faced indefensible, unsupportable, bullshit?

I am more than amazed; I am disgusted, revolted and ashamed of the system we must submit ourselves to, controlling our destiny. It feels as though we are in a third world system where justice is bought and sold as a commodity and someone is looking for a payoff as why else would their position be so completely void of any logic or legitimate foundation.

I will be attending this hearing on behalf of my client. I will do my best to resolve this and bring back justice to the Justice Department and my clients. I will report back my success.

Do they shoot the messenger?

Reduce your rents: Landlord negotiating logic

There are a number of issues involved in successfully negotiating a discount in your lease with your landlord.

On or side is the clear fact that most landlords understand, that revenues are generally down, in many cases significantly down. Overhead is always increasing and leases negotiated when revenues were higher are unaffordable in today’s declining market. This puts pressure on landlords to willingly reduce its rents.

The problem is, landlords are reluctant to negotiate with existing renters. They are in contract, possibly personally guaranteed, and frequently current, yet ‘wanting’ a rent reduction. This is a very tough negotiation and likely to fail.

If the renter is in significant arrears, there may be some justification demonstrated but the issue frequently includes the pay back of back unpaid rent, further complicating the workout and threatening their personal guaranty.

Sometimes when dealing with large national real estate companies, there is simply no practical way to even propose let alone negotiate a discount for an established lease.

It is being done, successfully every day, all over the country, as any landlord would much prefer to discount rents than have a long term vacancy and thus there is a strong desire to keep the tenant even at a lower lease rate.

Thus, the best negotiation includes a clear demonstration with hard numbers, current operating statements demonstrating the massive losses or at least significant reductions in revenue thus the reduction in net profit requiring a reduction in rents if the business is to remain viable. Present your case with convincing numbers and the landlord will have little choice if your presentation is credible.

Do it, it may help you survive and them emerge again as you adjust your business model to the economic conditions we are in.