Regulations

Small Business Administration

§ 120.521

Subpart E—Servicing, Liquidation
and Debt Collection Litigation
of 7(a) and 504 Loans

erowe on DSK5CLS3C1PROD with CFR

SBA’S PURCHASE OF A GUARANTEED
PORTION
§ 120.520 Purchase of 7(a) loan guarantees.
(a) When SBA will purchase—(1) For
loans approved on or after May 14, 2007.
A Lender may demand in writing that
SBA honor its guarantee if the Borrower is in default on any installment
for more than 60 calendar days (or less
if SBA agrees) and the default has not
been cured, provided all business personal property securing the defaulted
SBA loan has been liquidated. A Lender may also submit a request for purchase of a defaulted 7(a) loan when a
Borrower files for federal bankruptcy
once a period of at least 60 days has
elapsed since the last full installment
payment. If a Borrower cures a default
before a Lender requests purchase by
SBA, the Lender’s right to request purchase on that default lapses. SBA considers liquidation of business personal
property collateral to be completed
when a Lender has exhausted all prudent and commercially reasonable efforts to collect upon these assets. In
addition, SBA, in its sole discretion,
may purchase the guaranteed portion
of a loan at any time whether in default or not, with or without the request from a Lender.
(2) For loans approved before May 14,
2007. The regulations applicable to the
time that a Lender may make demand
for purchase that were in effect immediately prior to this date will govern
such loans.
(b) Documentation for purchase. SBA
will not purchase its guaranteed portion of a loan from a Lender unless the
Lender has submitted to SBA documentation that SBA deems sufficient
to allow SBA to determine whether
purchase of the guarantee is warranted
under § 120.524.
(c) Purchase of loans sold in Secondary
Market. When the Lender has sold the
guaranteed portion of a loan in the
Secondary Market, under subpart F of
this part, Lenders must perform all
necessary servicing and liquidation actions for such loan even after SBA has

purchased the guaranteed portion of
such loan from a Registered Holder (as
that term is defined in § 120.600(i)). In
the event that SBA purchases its guaranteed portion of such a loan from the
Registered Holder, Lenders must provide SBA with a loan status report
within 15 business days of such purchase. This report should include but
not be limited to, a status report on
the borrower and current condition of
the collateral, plans for any type of
loan workout or loan restructuring, existing liquidation activities including
the sale of loan collateral, or the status of ongoing foreclosure proceedings.
The report should accompany requested documentation that SBA
deems sufficient to be able to review
the Lender’s administration of the loan
under § 120.524. A Lender’s failure to
provide sufficient documentation may
constitute a material failure to comply
with
SBA
requirements
under
§ 120.524(a)(1), and may lead to initiation of an action for recovery from
the Lender of all or some of the moneys SBA paid to a Registered Holder on
a guarantee. SBA will also evaluate the
Lender’s continued participation in the
Secondary Market and may restrict
further sale of guaranteed portions
into the Secondary Market until SBA
determines that the Lender has provided sufficient documentation for purchases.
(d) No waiver of SBA’s rights. Purchase
by SBA of the guaranteed portion of a
loan, or of a portion of SBA’s guarantee of a loan, either through a negotiated agreement with a Lender or otherwise, does not waive any of SBA’s
rights to recover from the responsible
Lender any money paid on the guarantee based upon the occurrence of any
of the events set forth in § 120.524(a) in
connection with that loan.
[72 FR 18360, Apr. 12, 2007]

§ 120.521 What interest rate applies
after SBA purchases its guaranteed
portion?
When SBA purchases the guaranteed
portion of a fixed interest rate loan,
the rate of interest remains as stated
in the note. On loans with a fluctuating interest rate, the interest rate
that the Borrower owes will be at the
rate in effect at the time of the earliest

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