When routine is - not - beware!
In our liquidation work with Lenders, we often see how the lack of a Litigation Plan leads to a number of problems.
The most painful problem: legal expenses that SBA will not reimburse.
Once a loan starts to go south, it picks up speed. And before you know it, you’re playing catch-up instead of leading the charge.
So how do you turn that around?
Start by having a good, SBA-knowledgeable attorney on speed dial.
Then familiarize yourself and your staff with two key phrases in SBA liquidations: Routine Litigation and Non-Routine Litigation. SBA makes these pretty easy to understand, and we have some pointers here to help.
Routine Litigation is uncontested litigation.
Aggregated legal fees do not exceed $10,000
Foreclosure actions are undisputed
Bankruptcies are non-adversarial
Non-Routine Litigation is everything else!
A Receiver is appointed to operate the business or sell the collateral
Aggregate legal fees exceed $10,000
Factual or legal issues require adjudication to resolve
Litigation involves a conflict of interest between the Lender and SBA
Litigation involves a 7a loan and the Lender provided a separate loan to the same Borrower
Knowing these details makes it easier to navigate the process and build your procedures.
Here’s what to keep in mind:
All lenders (delegated or non-delegated) must submit a Litigation Plan to SBA for approval for their non-Routine litigations.
Lenders must receive written approval from SBA prior to initiating non-Routine litigation.
If Routine litigation at some point transforms to non-Routine (and we all know it happens!), you must submit a Litigation Plan for SBA approval.
A best practice is to always do a Litigation Plan for both Routine and Non-Routine litigations. Plans for Routine remain in your file and act as a map for your staff to understand the process – and can be built upon if you end up in non-Routine litigation.
Key point: don’t move so quickly that you miss a step!
While it’s okay to file a motion to protect your position, you still need to be sure to draft a Litigation Plan before you go any further. That way, you can determine if you need SBA prior approval of the Litigation Plan or for any of your Liquidation Actions.
We know it’s confusing. And that’s why we offer help navigating the liquidation process. Schedule a consultation today to discuss your situation.