Regulations CFR 120.524

§ 120.522

13 CFR Ch. I (1–1–11 Edition)

uncured payment default, or the rate
in effect at the time of purchase (where
no default has occurred).
§ 120.522 Payment of accrued interest
to the Lender or Registered Holder
when SBA purchases the guaranteed portion.
(a) Rate of interest. If SBA purchases
the guaranteed portion from a Lender
or from a Registered Holder (if sold in
the Secondary Market), it will pay accrued interest at:
(1) The rate in the note if it is a fixed
rate loan; or
(2) The rate in effect on the date of
the earliest uncured payment default,
or of SBA’s purchase (if there has been
no default).
(b) Payment to Lender—(1) For loans
approved on or after May 14, 2007. SBA
will pay up to a maximum of 120 days
interest to a Lender at the time of
guarantee purchase.
(2) For loans approved before May 14,
2007. The regulations applicable to the
amount of interest that SBA will pay
to a Lender upon loan default that
were in effect immediately prior to
this date will govern such loans.
(c) Payment to Registered Holder. SBA
will pay a Registered Holder all accrued interest up to the date of payment.
[61 FR 3235, Jan. 31, 1996, as amended at 72
FR 18361, Apr. 12, 2007]

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§ 120.523 What is the ‘‘earliest uncured
payment default’’?
The earliest uncured payment default
is the date of the earliest failure by a
Borrower to pay a regular installment
of principal and/or interest when due.
Payments made by the Borrower before
a Lender makes its request to SBA to
purchase are applied to the earliest
uncured payment default. If the installment is paid in full, the earliest
uncured payment default date will advance to the next unpaid installment
date. If a Borrower makes any payment
after the Lender makes its request to
SBA to purchase, the earliest uncured
payment default date does not change
because the Lender has already exercised its right to request purchase.

§ 120.524 When is SBA released from liability on its guarantee?
(a) SBA is released from liability on
a loan guarantee (in whole or in part,
within SBA’s exclusive discretion), if
any of the events below occur:
(1) The Lender has failed to comply
materially with any Loan Program Requirement for 7(a) loans.
(2) The Lender has failed to make,
close, service, or liquidate a loan in a
prudent manner;
(3) The Lender’s improper action or
inaction has placed SBA at risk;
(4) The Lender has failed to disclose a
material fact to SBA regarding a guaranteed loan in a timely manner;
(5) The Lender has misrepresented a
material fact to SBA regarding a guaranteed loan;
(6) SBA has received a written request from the Lender to terminate the
guarantee;
(7) The Lender has not paid the guarantee fee within the period required
under SBA rules and regulations;
(8) The Lender has failed to request
that SBA purchase a guarantee within
180 days after maturity of the loan.
However, if the Lender is conducting
liquidation or debt collection litigation
in connection with a loan that has matured, SBA will be released from its
guarantee only if the Lender fails to
request that SBA purchase the guarantee within 180 days after the completion of the liquidation or debt collection litigation;
(9) The Lender has failed to use required SBA forms or exact electronic
copies; or
(10) The Borrower has paid the loan
in full.
(b) If SBA determines, at any time,
that any of the events set forth in
paragraph (a) of this section occurred
in connection with that loan, SBA is
entitled to recover any moneys paid on
the guarantee plus interest from the
Lender responsible for those events.
(c) If the Lender’s loan documentation or other information indicates
that one or more of the events in paragraph (a) of this section occurred, SBA
may undertake such investigation as it
deems necessary to determine whether
to honor or deny the guarantee, and
may withhold a decision on whether to

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Small Business Administration

§ 120.535

honor the guarantee until the completion of such investigation.
(d) Any information provided to SBA
by a Lender or other party will not
prejudice, or be construed as effecting
any waiver of, SBA’s right to deny liability for a guarantee if one or more
of the events listed in paragraph (a) of
this section occur.
(e) Unless SBA provides written notice to the contrary, the Lender remains responsible for all loan servicing
ad liquidation actions until SBA honors its guarantee in full.
[61 FR 3235, Jan. 31, 1996, as amended at 72
FR 18361, Apr. 12, 2007]

§ 120.530 Deferment of payment.
SBA may agree to defer payments on
a business loan for a stated period of
time, and use such other methods as it
considers necessary and appropriate to
help in the successful operation of the
Borrower. This policy applies to all
business loan programs, including 504
loans.
§ 120.531 Extension of maturity.
SBA may agree to extend the maturity of a loan for up to 10 years beyond
its original maturity if the extension
will aid in the orderly repayment of
the loan.

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§ 120.532 What is a loan Moratorium?
SBA may assume a Borrower’s obligation to repay principal and interest
on a loan by agreeing to make the payments to the Lender on behalf of the
Borrower under terms and conditions
set by SBA. This relief is called a
‘‘Moratorium.’’ Complete information
concerning this program may be obtained from local SBA offices.
§ 120.535 Standards for Lender and
CDC loan servicing, loan liquidation and debt collection litigation.
(a) Service using prudent lending standards. Lenders and CDCs must service
7(a) and 504 loans in their portfolio no
less diligently than their non-SBA
portfolio, and in a commercially reasonable manner, consistent with prudent lending standards, and in accordance with Loan Program Requirements. Those Lenders and CDCs that
do not maintain a non-SBA loan portfolio must adhere to the same prudent

lending standards for loan servicing
followed by commercial lenders on
loans without a government guarantee.
(b) Liquidate using prudent lending
standards. Lenders and Authorized CDC
Liquidators must liquidate and conduct debt collection litigation for 7(a)
and 504 loans in their portfolio no less
diligently than for their non-SBA portfolio, and in a prompt, cost-effective
and commercially reasonable manner,
consistent with prudent lending standards, and in accordance with Loan Program Requirements and with any SBA
approval of either a liquidation or litigation plan or any amendment of such
a plan. Lenders and CDCs that do not
maintain a non-SBA loan portfolio
must adhere to the same prudent lending standards followed by commercial
lenders that liquidate loans without a
government guarantee. They are also
to operate in accordance with Loan
Program Requirements and with any
SBA approval of either a liquidation or
litigation plan or any amendment of
such a plan.
(c) Absence of actual or apparent conflict of interest. A CDC must not take
any action in the liquidation or debt
collection litigation of a 504 loan that
would result in an actual or apparent
conflict of interest between the CDC
(or any employee of the CDC) and any
Third Party Lender, associate of a
Third Party Lender, or any person participating in a liquidation, foreclosure
or loss mitigation action.
(d) SBA rights to take over servicing or
liquidation. SBA may, in its sole discretion, undertake the servicing, liquidation and/or litigation of any 7(a) or 504
loan. If SBA elects to service, liquidate
and/or litigate a loan, it will notify the
relevant Lender or CDC in writing,
and, upon receiving such notice, the
Lender or CDC must assign the Loan
Instruments to SBA and provide any
needed assistance to allow SBA to service, liquidate and/or litigate the loan.
SBA will notify the Borrower of the
change in servicing. SBA may use contractors to perform these actions.
[72 FR 18361, Apr. 12, 2007]

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