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BK7 and getting a Heloc with SBA default PGs

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  • BK7 and getting a Heloc with SBA default PGs

    I had a BK7 discharged about 18 mos ago due to defaulting on 2 SBA loans (from 2 different banks) and associated business debt. The default was due to business downturn and credit card defaults leading to business failure on 2 restaurants. And though personal cards, the balances were 100% business related as explained to the trustee. We had home (& heloc) mortgages and car loans reaffirmed in the bk7 process and we've not been late on these before or since discharge. My credit is inching up and I'm at ~670 score today.

    However bk doesn't eliminate the personal guarantees (since SBA loans almost always require a personal guarantee to be approved for the biz loan). We have been having a difficult time trying to negotiate with both SBA lenders by way of an Offer in Compromise (we've had two OICs rejected prior to bk). Consequently, even though the 2 SBA loan balances have been wiped away, the two SBA lenders still have title positions on our residence (because of PGs) behind the primary mortgage lender who we also have the heloc through. So the residential mortgage bank has position 1 & 2 on the title, then comes the 2 SBA lenders in position 3 & 4.

    So that's the background scenario. Now to the 66K question...

    My heloc mortgage will be paid off in 60 days and the primary principle will then be about 190k on a 320k valued residence. Since plenty of equity, would the primary lender possibly allow for a new heloc (recognizing it would have to be < or = to 80% loan to value ratio) given my bk7 history? And specifically, IF the existing residence mortgage lender 'could' normally approve/allow for another or new heloc, would that residential lender who is today in positions 1 & 2 be able to give a new heloc and still remain in position 2 ahead of the SBA lenders (now in position 3 & 4)??

    The reason I want to do this is...as the current position 1 & 2 lender's principle gets eaten down over the loan life, it shows the SBA lenders that there's increasingly more equity and thus they expect a higher OIC amount to remove themselves from the title positions on the residence. A 'renewed' heloc of about 66K would balloon the principle balance back up to about 256K and thus lower the equity positions on 3 & 4 (SBA lenders). The 'new' heloc then allows me to leverage my position that there's less equity now for SBA lenders because of a 'new' heloc and that 'new' heloc also provides me with capital to make them go away.

    I'm strongly contemplating walking away quickly if that's not feasible (because primary and heloc are $2500/mo)...but I hate to walk away from that much equity without a fight.

    I hope I adequately explained this mess of a situation I'm in. If not, feel free to ask me Qs to better explain/understand. Any insights (and prayers) are welcomed and appreciated.

  • #2
    Originally posted by NBICD View Post
    However bk doesn't eliminate the personal guarantees (since SBA loans almost always require a personal guarantee to be approved for the biz loan).
    I don't understand that statement. Bankruptcy removes your personal, in personam, liability for the SBA loan. If you pledged personal property then that's an entirely different story. A bankruptcy won't remove any consensual lien placed on property (and is why mortgages themselves survive -- albeit your personal liability on the Note does not).


    Originally posted by NBICD View Post
    My heloc mortgage will be paid off in 60 days and the primary principle will then be about 190k on a 320k valued residence. Since plenty of equity, would the primary lender possibly allow for a new heloc (recognizing it would have to be < or = to 80% loan to value ratio) given my bk7 history? And specifically, IF the existing residence mortgage lender 'could' normally approve/allow for another or new heloc, would that residential lender who is today in positions 1 & 2 be able to give a new heloc and still remain in position 2 ahead of the SBA lenders (now in position 3 & 4)??
    Okay, so this ms making more sense that you actually allowed a consensual lien to be placed upon your personal (and real) property for the SBA loan. The lien is not extinguished by the bankruptcy.

    I don't know what you are trying to convey. Almost all mortgage lenders (HELOC, Mortgage, or other Equity Products) will use CLTV (combined LTV) when determining whether they will underwrite the loan. Since your BK discharge is recent (less than 2 years), you'll probably be hard pressed to get a HELOC. In fact, you may be hard-pressed to get a HELOC without 4 years of seasoning depending on overlays.

    Originally posted by NBICD View Post
    The reason I want to do this is...as the current position 1 & 2 lender's principle gets eaten down over the loan life, it shows the SBA lenders that there's increasingly more equity and thus they expect a higher OIC amount to remove themselves from the title positions on the residence. A 'renewed' heloc of about 66K would balloon the principle balance back up to about 256K and thus lower the equity positions on 3 & 4 (SBA lenders). The 'new' heloc then allows me to leverage my position that there's less equity now for SBA lenders because of a 'new' heloc and that 'new' heloc also provides me with capital to make them go away.
    A new HELOC would be in the next available position as "lien priority" is typically by filing date/time. First in wins. Any new HELOC provider would see a 3rd and 4th position lien and probably not even entertain a HELOC because they are so far down the line. If you have a traditional bank for your first position mortgage, they probably won't be happy to be 4th on a HELOC as most HELOC are either 2nd or 3rd position in my personal experience.

    Unfortunately you pledged the home as collateral (which is typical for SBA loans).
    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
    Status: (Auto) Discharged and Closed! 5/10
    Visit My BKForum Blog: justbroke's Blog


    I am not an attorney. Any advice provided is not legal advice.

    Comment


    • #3
      So you believe it's next to impossible to be approved for a heloc given how recently my bk was discharged and even moreso because if a lender would approve a heloc they'd be in the last position behind the SBA lien/title positions due to the new heloc being issued in time after the SBA loans and PGs were issued.

      I was hoping if I got heloc through same lender as the primary mortgage lender, they could remain in a higher position ahead of the SBAs.

      Is there any other avenues you would recommend? OR just walk?? OR continue trying to negotiate with SBA lenders to remove lien/title positions through OIC??

      Clearly I'm not an SBA expert but it now seems that the purpose of SBA (with the 80% guarantee to lending bank if the person receiving the loans fails) does nothing for the borrower and just protects the lending bank (of 80%). And consequently borrowers with PGs on their homes as collateral will often time lose their home. Obviously no SBA borrower expects to fail but it seems like wen it does happen the bank(s) don't get screwed, only the borrower.

      Comment


      • #4
        I'm not an SBA expert either although I considered it for my business. The guarantees and pledging personal property is how the government really backs the SBA loans (the 80% guarantee). There are some cases in which the government does lose on an SBA loan where the borrower fails in business and their collateral is also insufficient to cover the losses. The entire purpose of the 80% guarantee was to encourage the banks to lend. Think of the 80% guarantee as solely a worst case for the lender. The lender just follows "normal" process to collect -- foreclosures, lawsuits, settlement, etc -- and if they don't collect everything, they can get up to 80% from the SBA as a guarantor.

        I would personally try everything. Your thought process about different scenarios and options is just fine for me. As for negotiating lien positions, that does happen at times where you ask a lienholder to subordinate their lien position to another lender. I don't know how difficult that is to do as I never even tried (although my lender said that I must do so to receive my modification).

        Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
        Status: (Auto) Discharged and Closed! 5/10
        Visit My BKForum Blog: justbroke's Blog


        I am not an attorney. Any advice provided is not legal advice.

        Comment


        • #5
          I sure appreciate the dialogue. As well wonder why you have soooo many posts for almost a decade on this bk subject matter. I know after this is done, I'm going to remember the pain but not look back. But still, thank you for your knowledge and experience based input.

          I'm gonna try a couple more things before throwing in the towel. When and if that happens, the primary lender will foreclose and boot me out in about 3-6 mos (as I have heard). Then (I understand) they will sell at a liquidated rate likely at an auction or a 30-day sale (in this neck of the woods that's a quick sell as most homes around here sit on market for 4-6+ months before they sell). The sale would likely get 75% of market value and then prob have to give auction house or realtor 5-10% thus receiving 65%-70% of market value. So let me ask you this...if I were to sell the home to a 'friend' at that 65%-70% of market value or even less but enough to cover principle owed to primary lender (in 1st and 2nd title/lien position), can the SBA lenders block such a sale since there would be 'no meat left on that bone' for them? Obviously it wouldn't be shared that the buyer and seller are acquainted.

          I've offered them both a total of 25K previously and they rejected. I recently told the first position SBA bank I'd do 50K to cover both for title lien position release but that I was now at a cross roads and was ready to default on primary if I couldn't quickly get them to quickly accept. VP Dude initially seemed very interested but 3 more calls/VMs left and no response.

          Comment


          • #6
            Originally posted by NBICD View Post
            I'm gonna try a couple more things before throwing in the towel. When and if that happens, the primary lender will foreclose and boot me out in about 3-6 mos (as I have heard). Then (I understand) they will sell at a liquidated rate likely at an auction or a 30-day sale (in this neck of the woods that's a quick sell as most homes around here sit on market for 4-6+ months before they sell). The sale would likely get 75% of market value and then prob have to give auction house or realtor 5-10% thus receiving 65%-70% of market value. So let me ask you this...if I were to sell the home to a 'friend' at that 65%-70% of market value or even less but enough to cover principle owed to primary lender (in 1st and 2nd title/lien position), can the SBA lenders block such a sale since there would be 'no meat left on that bone' for them? Obviously it wouldn't be shared that the buyer and seller are acquainted.
            Your hypothetical would not work because all liens must be satisfied for clear title (a warranty deed of sorts) to the property. That would be known as a "short-sale" and the creditors that would stand to loose money, may not like a short sale. However, short sales are very common post the housing bubble. I would avoid non-arm's length transactions to avoid any appearance of fraud.

            Originally posted by NBICD View Post
            I've offered them both a total of 25K previously and they rejected. I recently told the first position SBA bank I'd do 50K to cover both for title lien position release but that I was now at a cross roads and was ready to default on primary if I couldn't quickly get them to quickly accept. VP Dude initially seemed very interested but 3 more calls/VMs left and no response.
            They can smell the equity. I'm surprised if the debt (lien) hasn't already been sold and you're dealing with a junk debt buyer. Your issue is purely that you have juicy equity in the property which could satisfy a portion of the debt -- at least is appears that way on paper.

            Your calculations are not without merit. There is a cost to sell, but you know that at auction a lienholder can bid up to the amount owed without actually spending a dollar? A smart lienholder would go to the auction and make sure that no one underbids.

            I would think about talking to an asset protection attorney and/or an attorney specializing in foreclosure prevention. You could leverage an apparent foreclosure by stopping payments on the home and wait for the first lienholder to sue for foreclosure. Then negotiate a short sale with inferior lienholders and see what happens. The problem is I haven't used any such strategy and I'm sure there are many more. That was just something I thought of, but it has absolutely no guarantees and success may not be that high.
            Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
            Status: (Auto) Discharged and Closed! 5/10
            Visit My BKForum Blog: justbroke's Blog


            I am not an attorney. Any advice provided is not legal advice.

            Comment


            • #7
              One thing that hasn't been asked on this thread, and is very important: how much are the SBA liens for? If the lien amounts are so high, that you will never own the house outright without paying back vast sums of discharged debt, then it might be best to quit paying the first mortgage and let the bank foreclose. The bankruptcy discharge prevents any further collections action, or negative credit reporting on any of these loans. You would, of course, have to pay rent for several years, but could certainly buy another house in the future.

              Comment


              • #8
                JB - debt not sold. Dealing with original banks. There certainly is equity but (BCohen) the defaulted (and discharged SBA debt) was $190 & $170 respectively. They likely do smell the equity.

                JB - I was solicited by an OIC outfit 6 years ago when everything was beginning to head south but hadn't yet missed a payment yet and were struggling to make the monthly note(but I clearly saw writing on the wall). We signed up with that OIC group who marketed to me hard and who 'assured me' we would avoid bk, keep the businesses (by way of an oldco ---> newco tactic), work to rebuild credit, and get PG removed/not lose home. They told me 12-18 mos max. Everything they promised (but not guaranteed by contract) has backfired and they have essentially abandoned me after paying $19K (but that's a whole different vendetta that I will address once I cross this 'should I continue paying or default/foreclose' intersection). So not sure I'm game for trying another tie & suit to charge me and not guarantee me.

                I keep looking and hoping for a way out and not seeing it. My bk attorney's advice was to walk away 18 months ago but I've continued to pay 2.5k/mo and pay down equity just making my position worse and wasting good cash on what continues to be a losing cause.

                My fear (bcohen) is being in my 50s and in the midst of a career change/job search currently is...will I have enough time left to rebuild credit and be able to buy.

                Certainly seems to continue to be a conundrum.

                Thank you both for your input and I certainly wouldn't mind further comments, advice, or Qs as I share additional info about my scenario.

                Comment


                • #9
                  If you have SBA liens for $190k and $170k on a house which is currently worth $320k and still has $190k owed on the mortgage, that means you'd have to repay $550k in principal alone--not even taking into consideration interest--to ever actually own the house.

                  If these figures are correct, I'd cut my losses ASAP. You don't "own" anything now--you're just throwing good money after bad. I would quit paying ALL mortgages, stay in the house payment-free while the bank(s) foreclose, then move out and rent. You will actually have more equity in a rental ($0) than you do in your current house!

                  Comment


                  • #10
                    bcohen's plan sounds really good and I'd use that strategic foreclosure exactly in that manner and try to maximize your benefit. It is too bad that all that was pledged to SBA and you have no recourse.
                    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                    Status: (Auto) Discharged and Closed! 5/10
                    Visit My BKForum Blog: justbroke's Blog


                    I am not an attorney. Any advice provided is not legal advice.

                    Comment


                    • #11


                      Being ignorant to SBA loans, I take it the SBA liens could not be stripped in the chapter 7, even though the equity in your home they attached to was exempt?

                      Different than business loans secured by UCC-1 liens against "all personal property?"

                      Sounds like a terrible position. At least you have a lot of equity, so you don't need to worry about the primary mortgage you reaffirmed if you do go the foreclosure route. Sad the effect that would have on your credit score though.

                      Comment


                      • #12
                        Originally posted by ChaptainHook View Post
                        Being ignorant to SBA loans, I take it the SBA liens could not be stripped in the chapter 7, even though the equity in your home they attached to was exempt?
                        You can't strip (consensual) liens on a primary residence in a Chapter 7. The Supreme Court just made that clear, after Dewsnup (1992) you simply cannot strip an unsecured lien in a Chapter 7 (unless there are some material defects in the recordation process...).

                        Originally posted by ChaptainHook View Post
                        Different than business loans secured by UCC-1 liens against "all personal property?"
                        The SBA lender may actually require collateral for the loan and business owners pledge their personal (and real) property. The real property pledge may be memorialized (and enforced) by placing and recording a lien on the real property. So it acts no differently than a mortgage and is subject to priority (first in, first out).
                        Last edited by justbroke; 07-10-2017, 01:24 PM.
                        Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                        Status: (Auto) Discharged and Closed! 5/10
                        Visit My BKForum Blog: justbroke's Blog


                        I am not an attorney. Any advice provided is not legal advice.

                        Comment


                        • #13
                          Thanks JB, as always.

                          Comment

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