Have you ever tried to teach math to a pet? If you have, then you know what it’s like to deal with the Treasury. It’s not their fault that they’re incompetent, it’s just the way it is. Despite the rampant incompetence, there is actually value in knowing this fact.
Last week, I got a call from a gentleman who is trying to purchase a property. The guy he is trying to buy if from had an SBA 504 loan many years ago. He stopped paying on the SBA portion of the loan (504 loans comprise two loans – the 1st secured by a 1st priority lien from a bank, and a 2nd with a 2nd priority lien from the SBA via a CDC). In many cases, rather than foreclose on a property (usually due to a weak collateral position), the SBA portion was referred to the Treasury in hopes that they could find a few pennies in the couch cushions (usually via wage garnishment and tax refund offset). Even though they didn’t foreclose, the lien does remain on the property. This doesn’t really present an issue if a borrower walks away from the property. However, if the borrower DOES want to sell the property, it starts to get a bit complicated. The Treasury, it’s important to note, lacks the ability to release a lien since they are not the lien holder. This mean when you ask the Treasury about it, you will likely be met with some sort of incoherent excuse about why it can’t be done.
My advice to this gentlemen was simple: go back to the SBA and the CDC and explain that there is a buyer for the property. In cases like this one, they should be able to recall the file from Treasury in order to allow it to be sold.
His next question was about the pending deficiency that would exist even if the property were to be sold. He wanted to know if the Treasury or SBA would be willing to negotiate a settlement at the same time he works to sell the property. In short, no. No they won’t. Step one would be to sell the property, and step two would be to negotiate a settlement. In pretty much every case I’ve ever seen, they will not even broach the subject of settlement until after the sale of the real estate collateral is complete. To be completely candid, even if they were to weave their way through the jungle of incompetence and sell the property, if the deficiency balance were referred back to the Treasury, chances of a reasonable settlement would be minimal.