After the guaranty purchase package has been submitted, the SBA has honored the guaranty, and the lender has completed liquidation, the lender must submit to the SBA a request for charge-off of the loan. The SBA looks for prompt and timely submission of the this request so that it can refer the loan to Treasury for collection and clear the loan from its books.
The SBA recently released Charge-Off Tabs that are designed to help lenders provide the information that the SBA requires to reclassify a loan from "liquidation" to "charge-off" status and to meet the lender's obligation to provide the SBA with a wrap-up report upon the completion of liquidation (Charge-off Tabs). These tabs should be used in lieu of the wrap-up report to which the current 7(a) 10 Tab includes a link. The tabs are as follows:
Tab 1: Lender information. This tab calls for identifying information regarding the loan and the lender, and includes the same certification to the SBA that is included in the SBA's form Demand Letter. Lenders should be aware that misrepresentations in the Charge-Off Tabs may give rise to civil or criminal liability, including claims of liability under the False Claims Act.
Tab 2: Is Charge-off Appropriate. Tab 2 explains when charge-off is appropriate and identifies circumstances, such as a pending post-purchase review, ongoing bankruptcy, liquidation, litigation or workout, that would require the lender to refrain from submitting a charge-off request.
Tab 3: Charge-off Justification. The lender must provide a narrative detailing its recovery and collection efforts, a copy of the post-default Site Visit Report, and a current loan transcript. Discrepancies with the lender's 1502 reporting must be explained.
Tab 4: Recovery Worksheet. All recoveries must be summarized on the included spreadsheet, and supporting documentation (including settlement statements, copies of cancelled checks and Offers in Compromise) must be attached. A link to the CPC Tabs is included on this Tab, to allow the lender to submit expenses that were deducted from recoveries that have not been reviewed or approved. This is the final opportunity to request that the SBA share in the lender's unreimbursed expenses; after the SBA has charged off the loan, the SBA will not consider future requests to pay its share of expenses. Thus, a careful review of the reimbursable expenses incurred by the lender is in order, to make sure that all eligible reimbursements have been requested.
Tab 5: Obligors/Collateral Worksheet. The lender must detail the collateral, its required and actual lien position and liquidation status on Tab 5, as well as the status of each guarantor of the loan.
Tab 6: Collateral Disposition. This tab explains when the SBA allows personal and real property collateral to be abandoned, the analysis required to make the determination, and calls for a justification for any such abandonment, including supporting documentation. Lenders should consult the more detailed rules set forth in SOP 50 57 to make sure that they have fully supported any abandonment of collateral.
Tab 7: Treasury Referral. The lender must provide necessary contact and tax ID information (SSN/EIN) for each obligor, and identify the circumstances that would prevent a referral to the U.S. Treasury for further collection efforts.
It's important to remember that the SBA can recommend a repair to, or denial of, the guaranty at any time, for up to 6 years from the time when payment was demanded. While submission of the Charge-Off Tabs may feel like the "last hurrah" of a file, the lender will best protect its guaranty by paying careful attention to detail, and making sure that it has met all SBA requirements right up to the very end.
