In many cases, the SBA may question a lender’s liquidation activities at the time of guaranty purchase review. A full or partial denial of liability is justified if a lender fails to liquidate a loan in a commercially reasonable and prudent manner and the failure caused, or could cause, a material loss on the loan. For example, a full or partial denial of liability is justified if the Lender:
a. Failed to act in a timely manner to safeguard the collateral until it could be liquidated;
b. Permitted a substantial decline in the value of collateral to occur because of unnecessary delays or mismanagement of the liquidation process;
c. Failed to account for items listed on the Lender’s pre-closing collateral list but not on the Lender’s post-default inventory of collateral; or
d. Failed to account for items listed on the Lender’s post-default site visit inventory and appraisal that were not included in the liquidation sale.
In the past, SBA has recommended repairs for failure to document a timely site visit if the inventory is gone or if property has been damaged. The good news: Prudent Lenders is here to help!