I have been working on an SBA Offer In Compromise since late 2017. It’s been a slog. The banker is actually a very nice guy, but we’ve been slowed down by a number of factors beyond our control. First, the bank that my client took the SBA loan from had not done a lot of SBA loan settlements. So I submitted the OIC, and the banker told me that it had been sent to SBA for review. “Whoah, that was easy!”, I thought. Normally, it takes a while for the bank to review the OIC before they sent it, so I thought we were on the fast track. Then, a few weeks later, the nice banker emailed me and asked for a bunch of additional information. It turned out the banker actually had no idea that the SBA requires a set of “tabs” that give the SBA an pretty thorough loan history.
A few weeks after that, the banker emailed me again and said we need an appraisal. This was a surprise to me. Not that an appraisal was needed, but that the banker hadn’t know that one was required by SBA. So, we went from awaiting a decision to SBA to explaining to my client why they would have to cough up $300-$400. They weren’t thrilled, and it set us back a month.
Finally, we got the appraisal, and got the worst surprise yet. My client assessment of their value was WAY off. Our original offer was for $25K. Based on the appraisal, it jumped to $70K. Not good, especially considering coming up with the $25K was going to be a $70K-$100K offer. Like in almost every appraisal situation I see, my client swears that the appraisal is way too high.
So, what can we do?
First, we asked the bank for a copy of the appraisal. They said no. This is not uncommon. Many banks will refuse to share an appraisal if the bank was the one that paid for it. The bank I used to work for claimed there was some sort of potential liability for the bank, and we would only release the report if the borrower signed an indemnification. Apparently, somewhere along the way, someone made a decision based on a bank appraisal, something went wrong, and the bank got blamed. And now many banks won’t share appraisals.
Since getting a copy of the appraisal wasn’t an option, my client had the option to order their own in order to try to show that the bank appraisal figure was too high. But they opted not to do that because they shared with me that their original offer of $25K was going to be a stretch, so going any higher was simply going to be impossible.
So what’s going to happen? Unfortunately, it’s not looking great. Since the home was pledged, foreclosure is a possibility. My client’s have met with a bankruptcy attorney to see what their options might be, which is obviously never the goal going into these types of negotiations.