Posts tagged ‘SBA’

Key Changes Made to New York Foreclosures, SBA Loans

Yours truly is discharging his duty to faithfully provide you with the most pertinent information to start your credit union day this morning by giving you a heads up on two recent developments that may impact your operations. First, I want to provide a snapshot of a vitally important recent decision by New York’s court of appeals clarifying how to calculate the statute of limitations for residential foreclosures in New York State. Spoiler alert: this is actually good news for New York lenders. Secondly, I have a few thoughts on the Biden Administration’s announcement yesterday of sudden and dramatic changes to the Paycheck Protection Program, with the aim of increasing the number of small businesses gaining access to these loans. 

Anyone who provides mortgage loans in New York State should make sure that they receive a summary of the decision issued late last week by New York’s court of appeals in Freedom Mortgage Corp. v. Engel. New York already has one of the longest, most complicated foreclosure processes in the country. This case resolved a series of issues which had threatened to make the foreclosure process even more difficult to execute for lenders. For example, there are two basic ways for commencing a mortgage foreclosure action in New York State and triggering the six year statute of limitations. One way is to actually go to court and file a foreclosure action. A second way is to send a delinquent borrower a notice of default. One of the questions addressed by the court of appeals was how to distinguish between putting a borrower on notice that they may be subject to a foreclosure action if they don’t make payments, and a notice that actually commences a foreclosure action. This distinction is crucial because an increasingly large number of defaults in New York take more than six years to resolve, and delinquent borrowers are claiming that the lender can no longer foreclose on their property. Fortunately, the court of appeals ruled that “even in the event of a continuing default, default notices provide an opportunity for pre-acceleration negotiation—giving both parties the breathing room to discuss loan modification or otherwise devise a plan to help the borrower achieve payment currency, without diminishing the noteholder’s time to commence an action to foreclose on the real property, which should be a last resort.” 

A second issue that has been hotly debated in New York courts is what actions stop a foreclosure action. For example, can a lender who is afraid that the statute of limitations is going to run out withdraw a foreclosure action and commence a new action in the future if they are unable to come to an agreement with the delinquent homeowner? Using wonderfully unequivocal language designed to provide lenders and borrowers in New York State a bright line rule that is easily understood, a voluntary discontinuation of a foreclosure action by withdrawal of the foreclosure complaint constitutes a revocation of the foreclosure. A lender can subsequently bring a new action with an entirely new six-year statute of limitations, even if the lender withdrew the previous action specifically to avoid having the statute of limitations run out. 

Shifting Gears to the Biden Administration and PPP

The Biden Administration announced that, starting tomorrow, SBA would be imposing a two-week window during which the agency will only accept PPP applications with 20 or fewer employees. The exclusive window will also be coupled with changes expanding who is eligible to receive PPP loans by stipulating that student loan debt and certain prior criminal convictions should not be part of the underlying criteria that constitute an effective strike against an applicant’s eligibility. I will have more to say on this as the process gets underway. While I understand what the Biden Administration is trying to accomplish, I’m more concerned with the speed with which they expect these changes to take effect. At the risk of sounding like an aging elementary school teacher in a 1950s sitcom, haste makes waste. 

On that note, peace out people. Enjoy your day.

February 23, 2021 at 9:56 am Leave a comment

PPP Open For Business – For Some

You may have seen this press release from the Small Business Administration, announcing that the Paycheck Protection Program was once again open for business, but there’s a good chance that your credit union was unable to process loans. 

The SBA announced that it was providing an exclusive window to community financial institutions. This means that unless your credit union is a CDFI or MDI, an NCUA designation which includes this list of credit unions, it is not eligible to begin processing these loans (for those of you scrolling, you can find the SBAs definition at 15 U.S.C. 636 (a)). The steps taken by the SBA are in part an understandable response to the first PPP rollout. Remember all of those articles about how the big banks and their favorite clients dominated the process? The hope is that smaller institutions, which tend to give more loans to small businesses, will be more willing and able to participate if they’re guaranteed access. Still, it does mean that many credit unions are largely excluded from this first stage of the rollout.

Credit unions with less than $10 billion in assets will have exclusive rights to lending out from a pot of no less than $15 billion that’s been set aside. However, community banks with the same asset size limits are also included in this pot, as well as institutions chartered under the Farm Credit System. The good news to take away from this is that your credit union will not have to wait in line behind big banks with infrastructure set up specifically for this type of process. (Section 1102(b) of the CARES Act (Public Law 116–136)). 

First Virtual State of the State

The Governor gave the first part of – hopefully – his only virtual State of the State address yesterday. We will be looking through his proposals, but right now, it seems like the issue that could have the greatest impact on credit unions is his plan to legalize the sale and distribution of marijuana on the state level.

January 12, 2021 at 9:58 am Leave a comment

Who Pays When an Agent Helps With a PPP Loan?

Good morning folks.  The Payment Protection Program (PPP) continues to be the government program that everyone loves to hate.  Even as Congress is being pressured to extend the program, which provides forgivable loans to small businesses which commit to keeping employees on payroll during the pandemic, the Small Business Administration (SBA) is being accused of exaggerating its effectiveness and banks and borrower agents continue to argue over who is responsible for agent fees.

This morning Reuters is reporting that Bank Of America has requested that the Trump Administration correct data which was released to demonstrate the value of the program.  In addition, thirty Democratic lawmakers have written a letter to the SBA in which they allege much of the data released about the impact of the PPP program has been “grossly incorrect”.

Meanwhile, back at the ranch, legal disputes involving PPP agent fees are spiking faster than New York places states on its travel ban list.  At issue is whether banks which provide PPP loans are obligated to pay the fees of agents who helped businesses process applications.

The CARES Act provides that “[a]n agent that assists an eligible recipient to prepare an application for a covered loan may not collect a fee in excess of the limits established by the Administrator.” 15 U.S.C. § 636(a)(36)(P)(ii).  The agents argue that the law and SBA regulations mandate that banks pay these fees.  The banks argue that they are only required to pay the agents if they agree to do so.  In testimony before Congress, Treasury Secretary Steven Mnuchin seemed to side with the banks, which is of course good news for credit unions which provided these loans.  However, regulations to clarify this issue have yet to be released and meanwhile litigation is continuing.

I am providing you a sample of a motion to dismiss, brought by Servisfirst Bank Inc., in Florida federal court, to give you a sense of some of the arguments being made.

These disputes could easily be resolved if the SBA were to issue more guidance or if Congress updates the PPP if and when it agrees to another round of pandemic legislation.

Yours truly is headed to the Adirondacks to show my oldest daughter what real camping is before she heads off to college.  I will reconnect with you a week from Monday.  In the meantime, thanks for reading the blog.

SERVISFIRST BANK INC lawsuit

July 29, 2020 at 9:47 am 1 comment

How Can PPP Borrowers Spend Their Loans?

The PPP can’t get a break. Now that at least some of the glitches involving lenders filing loans with the SBA have been addressed, there are increasing concerns that the program’s terms are too restrictive to help out some of the businesses it was designed to help. The result is that banks and credit unions participating in the program are being asked questions to which they cannot offer definite guidance and the SBA still faces a pressing need to clarify the intricacies of the program even as it is charged with getting more than half a trillion dollars out to the public in record time.

According to the New York Times, many small business owners are afraid to spend the money even after they get the loan. Under the program’s regulations, the PPP loans are completely forgivable provided 75% of the loans proceeds cover payroll costs and payroll is maintained. If those targets are missed then the PPP becomes a normal loan repayable with 1% interest. The article quotes business owners who are concerned that they may be violating the law depending on what they spend the money on if they decide to spend the money on expenses other than payroll.

In fairness to the SBA, this may be yet another example of overcautious legal interpretation as we all dive in to unchartered legal waters. Many of the small businesses interviewed have been advised by lawyers and accountants that they have the flexibility they need to spend the money where it can be of most use for their business. Then again, the same businesses were unable to get yes or no answers from the SBA.

Fortunately there is a simple solution to this problem. The SBA has it within its authority to either adjust the 75% requirement or clarify what small businesses are authorized to do with PPP money if they choose to forgo the 75% requirement. Hopefully it will take these steps quickly. After all, for many small businesses it makes more sense to invest these funds in ways that will keep the businesses viable rather than paying employees for whom they have no work and who are eligible for generous unemployment benefits.

In the meantime, if your members ask you how they can spend the money, I would instruct your staff to tell them that you are still waiting for an answer from the SBA.

May 4, 2020 at 9:42 am Leave a comment


Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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