Frequently, there are several factors to be taken into consideration when deciding whether to pursue the recovery of collateral securing a loan. For example, the costs and expenses associated with the recovery of attempts can sometimes greatly exceed the value of the specific collateral securing the loan. With SBA loans, there are very specific guidelines as to when collateral can, or should, be abandoned by a lender.

For personal property (i.e. equipment, inventory, etc.), collateral may be abandoned if the aggregate or individual recoverable value is less than $5,000.00. To substantiate the abandonment of the collateral, the lender must have sufficient documentation in the loan file. To satisfy this requirement, it is advisable to have a personal property appraisal/valuation that reflects the value of the collateral is less than $5,000.00. At a minimum, the lender should have an estimate from a qualified source as to the sale proceeds that would be expected to be realized from the collateral at a public auction.

For real property, collateral may be abandoned if the recoverable value is less than $10,000.00 per parcel. As with personal property, the lender must have sufficient evidence of the value of the real property in order to justify the abandonment. Having an updated real estate appraisal is the most assured way of complying with the SBA’s requirements. However, in certain circumstances, an updated Broker’s Price Opinion may suffice if the lender seeks to avoid the costs associated with obtaining an updated real estate appraisal.

In a situation where a lender has already acquired title to collateral and the collateral has a recoverable value of less than $5,000.00 for personal property, and $10,000.00 for real property, a lender cannot abandon the collateral unless it has been pre-approved by the SBA in writing. A request to abandon acquired collateral can be made in writing to the appropriate SBA Commercial Loan Servicing Center.

Please note that this article does not address situations involving senior lien foreclosures and the requirements to protect a junior interest in common collateral. If you are facing a senior lien foreclosure, or if you have any general questions about the abandonment of collateral, please do not hesitate to contact Your SBA Legal Department at Jellum Law