We recently sent out information to inform borrowers about potential deferment options available depending on loan type. Recently, clients have encountered lenders refusing to entertain deferment instead insisting borrowers take out an SBA Disaster Assistance Loan (“DALs”) to pay their mortgage or seek potential financing under the proposed legislation currently known as the CARES Act.
If you have encountered this pushback from your lender and FDIC and SBA deferment guidelines are not being followed, you may consider taking the following steps:
- Immediately submit written correspondence to your lender/bank requesting deferment and remind them that while DLA loans may be available up to $2 million, the purpose of said funds is to cover payroll and other fixed costs necessary to keep the doors open and the lights on; not to pay the mortgage. Furthermore, the uncertainty in the expediency with which the borrower will receive the funds and how much, if any, the borrower is able to secure, leaves DALs as an unviable option. Additionally, remind your lender that the CARES Act has yet to be passed into law and the same uncertainties and limitations that hurdles borrowers experience with DALs will be present with financing available under the CARES Act;
- If your lender “negatively” responds to your deferment request, insist, in writing, that said response is provided in writing and that it details the reasons for the lender’s refusal to make short term accommodations; This step is critical. You must persist, in writing, until the lender provides you a written letter outlining the basis of their denial. Remember that all communications between yourself and the lender need to be in writing;
- Once you have received a written response from your lender, you would be well advised to forward the lender’s response to the FDIC, informing them that your lender has failed and/or refused to adhere to SBA and FDIC deferment guidelines; and
- If you have an SBA loan and the foregoing steps have been taken without much success, the remaining option would be to cease paying on the loan. Keep in mind that this option should only be explored if all else fails and you have been unable to make any headway with the lender. Ultimately, the lender’s ability to foreclose on the collateral for your default for nonpayment would first require SBA approval. Given the current climate and the previously established guidelines regarding deferments, there is a strong likelihood foreclosure will not be available to lenders and instead, the SBA will require them to re-engage the borrower to work out a deal.