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In the Spotlight
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Ethan W. Smith is a partner in the law firm of Starfield & Smith, P.C., where his areas of practice focus on government guaranteed lending, commercial lending, banking, real estate and commercial law. Ethan has closed thousands of government guaranteed loans on behalf of his lender clients, assists lenders nationwide with SBA guaranty purchase issues and has been retained as an expert witness on SBA related litigation matters. Ethan is a licensed title insurance agent for Chicago Title and Fidelity National Title in both Pennsylvania and New Jersey. He is a member of the National Association of Government Guaranteed Lenders (NAGGL) and is a frequent speaker and serves as a member of its Associate Member Committee. Ethan is also an affiliate member of the National Association of Development Companies (NADCO), is a member of its Attorney Advisory Council and is qualified as a designated closing attorney for the SBA 504 Program.
ADMISSIONS:
- Pennsylvania
- New York
- Federal District Court for the Middle District of Pennsylvania
To read more about Ethan, click here.
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FEATURED ARTICLE
Best Practices: Avoiding Improper Lien Position
By: Katie O'Brien, Esquire
Because many SBA loans are under-collateralized, the SBA guaranty is often the most valuable piece of "collateral" to a lender. Because of this, it is imperative that lenders avoid the common pitfalls that can lead to impairment of the guaranty, whether in the form of a repair or a denial. Failure to obtain the proper lien position on collateral is one of the most common reasons for a repair of the SBA guaranty, but the good news is lenders can easily avoid this pitfall.
If a lender's Credit Memorandum and the SBA Authorization require a lender to take a first lien (or second lien, third lien, etc.) on a borrower's business personal property, the lender will need the borrower to execute a Security Agreement at closing and the lender must file a UCC-1 financing statement with the appropriate state or county office in the borrower's state of formation. The lender can request that the borrower grant permission to lender to pre-file its UCC-1 financing statement prior to closing. This is most often addressed in the Commitment Letter or in a separate authorization which the borrower executes and returns to the lender. Once lender has borrower's consent, it should file its UCC-1 financing statement and order a search to reflect its UCC lien position. If lender receives this search prior to closing, it can confirm whether it has the required lien position on the borrower's business personal property collateral. If the search reveals intervening liens which affect lender's lien position, lender should require that borrower obtain terminations or subordinations of such liens prior to closing.
Obtaining the proper lien position on real property collateral can be more challenging because a lender can not pre-file its mortgage or deed of trust prior to closing and funding. If the lender's Credit Memorandum and the SBA Authorization require title insurance on real property collateral, a lender can rely on its title policy to ensure that it has the proper lien position. A title agent will perform a date down search immediately before recording to confirm that no liens were filed of record since the date of the title commitment. The title agent will then issue a title policy which insures the lender that it has the anticipated lien position.
If the Credit Memorandum and SBA Authorization require a title search or other evidence of lien position, the lender should perform a title search within 30 days prior to closing. If the search reveals that the lender will have the proper lien position, the lender can proceed to close the loan and record its mortgage or deed of trust. Once the lender's lien instrument is recorded, the lender should order another title search on the property to confirm that no intervening liens were filed between the time of the search and the time of recording the lender's lien instrument. If the search reveals intervening liens, the lender should act expeditiously to resolve the issue while it still has the borrower's cooperation (rather than post-default when the borrower may not be cooperative) by obtaining a subordination from the intervening creditor, for example, or approving a post closing change memo if a different lien position is justified.
Whether the lender's collateral includes personal property, real property, vehicles or some other type of collateral, lenders should make sure they have the proper lien position on all collateral securing their loans to avoid a repair of the SBA guaranty. For questions regarding guaranty purchase issues, contact Katie at kobrien@starfieldsmith.com or at 267-470-1207.
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EVENTS & SEMINARS
** THIS WEEK **
Date: March 11 - 13, 2015
Location: Seven Springs Mountain Resort, Champion, PA
For more information about this event and/or to register, click here.
Date: March 23-26, 2015 Location: Long Beach, CA
For more information about this event and/or to register, click here.
SBA Lending Technical Conference
Presented By: NAGGL Date: May 5 - 7 , 2015 Location: San Antonio, Texas
For more information about this event and/or to register, click here.
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Mark Danford / President & CEO / Waterstone LSP
I have worked with Starfield & Smith, PC for almost 10 years. Ethan Smith and his team provide the best service and attention to detail that helps our companys continued success. I've never known another lawyer more prepared or focused. He and his team have the ability to dissect a loan, identify the tasks needed to put the lender in a position to protect their SBA guaranty. They provide great service, meeting the needs of our firm as a loan service provider, the lender and the borrower. I highly recommend Starfield & Smith to any lending institution closing SBA loan transactions.
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