Our lives have gone topsy-turvy in just weeks. Catch phrases and acronyms like PPP, Forgiveness, and tragically, COVID-19 are now part of our everyday vocabulary. Yet from my perspective, one of the most interesting phrases is, “In the absence of guidance …” I’d love to say that the lack of guidance is short-term, but I believe it will linger long after the CARES Act runs its course.
Why Focus on the Absence of Guidance? Here’s the twist: I’m not focusing on guidance for the Paycheck Protection Program, but on how to service or liquidate existing SBA loans while we’re social distancing. In the absence of guidance, how do we address the deadlines and timelines for servicing and liquidation in SOP 50 57 2?
What’s a Lender to Do? The world is focused on the PPP as it should be. But many lenders have had loans in liquidation status long before COVID-19. These loans aren’t eligible for the six-month payment deferral offered to existing SBA borrowers in regular servicing. So how do we handle these loans? Here are a few recommendations:
Site Visits. Site visits are due within 45 days of default or 15 days of adverse action. While most site visits should have been done prior to COVID-19, there may be some stragglers. Memo your file to include state or local declarations preventing a site visit within the required time frame. Then put a tickler on your system to check weekly, bi-monthly, or if the declarations have been lifted, proceed with the site visit and complete it as soon as possible.
Judgments, Lawsuits, Foreclosures. Many states have issued moratoriums on residential foreclosures, and some may have extended this to commercial real estate. In many cases, the courts are closed until we are past the social distancing phase of this pandemic. We recommend obtaining a status report from your legal counsel on court actions for files with pending legal action. that includes why the action may be halted, to be documented to your file. Have them include any opinion on state or local declarations that may have issued such moratoriums. Finally, put some ticklers in place to remind you to follow up from time-to-time.
Post-Default Appraisals. These will be harder to address. Because of social distancing you may not get access to the business personal property or real estate. In the case of real estate where you have a junior lien position, an alternate to a full appraisal may be the way to proceed. We recommend sticking to practices you have adopted for your regular commercial loans. For business personal property or 1st liens on real estate, we recommend that you memo to file that you couldn’t obtain access due to COVID-19 declarations for the area. Again, a tickler for regular follow up so you can gain access as soon as declarations are lifted.
Two-Year Liquidation Extensions. For those of you who have loans with two-year liquidations due to expire, or that have expired during this time: We strongly recommend getting in those Extension Requests citing current COVID-19 issues and the impact on your ability to proceed with or finalize liquidation. Ask for a reasonable time for the extension and again put a tickler in place for that extension expiration.
And as you always hear us say, Document. Document. Document. Be safe. Be well. Take care.