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  1. #1
    Join Date
    Jan 2017
    Posts
    1

    Default Can You Sue the SBA for Bad Faith in Settling a Loan

    My question involves collection proceedings in the State of: VA

    I had an SBA loan defaulted back in 2006 due to a failing business, prior to that I had been making payments even post business close on the loan. The loan is guaranteed against my house, and I attempted to settle with the SBA a few times, and made a few mistakes:

    1. I filed a few OIC's and worked with an SBA officer to do so the first time around 2009 ish, everything seemed to be going well, i submitted an OIC, and ... nothing .. no response for almost a year and a half and attempts to contact the SBA for status were unsuccessful, finally (2012) I found out the loan had been pushed to the treasury TOP program (without any response from SBA) and that the loan officer working with me had changed job.

    2. I pulled the loan out of TOP (2013) (my mistake), when I came into some $$ in order to pay it off, this time (as my home had gained value), the OIC was rejected, I (stupidly) assumed the loan would go back into TOP, it did not and I received a treasury collection letter in 2015.

    3. Upon receiving the collection (2015) letter I contacted SBA, i got them to take back the loan, i worked with a new loan officer there, I filed multiple OIC's amending them, and accepted a SBA counteroffer, I prepared for it by borrowing 100k and restructuring my finances - retained an accountant/attorney etc., at committee approval of their own counteroffer (this is 9months into the process), they told me my loan should never have been taken back from treasury and they rejected it.

    4. I negotiated with treasury, submitted an offer to them, they countered and I accepted their counteroffer, which they then again rejected (6 months later) which brings us to now.

    It should be noted that in all cases except 1. I've offered to pay for the entirety of the original loan amount, and in some cases the loan + interest to that point (3)

    I'm preparing to potentially file chp13 bankruptcy, but prior to that, I'd like to know if their is legal recourse in filing a lawsuit or similar against the government. I don't see how it's fair/reasonable to take my (1.) OIC to committee and not respond (while charging interest) then send the loan to TOP without followup/consultation of the OIC status. (3) Take the loan back from treasury, tentatively accept my offer and then almost a year into the process say that they shouldn't have taken it back from treasury. (4) Offer a counteroffer, and then reject my acceptance of their own counteroffer, i mean this seems to be the definition of bad faith negotiation, how can this even be allowed all the while accruing fees/interest and forcing me to restructure finances and take on legal/accounting costs. My Attorney has offered additional suggestions as far as other programs, or attempts he can make but outside of that:

    Is there legal recourse or a case for filing a lawsuit against the government for their actions in this case, I can pretty well document all of the above, it just seems asinine to me that the behavior of the government is acceptable, I don't see a possibility for resolution when the other side can force a situation where they delay infinitely and accrue interest during their own delays, lose the loan and find it again and submit to treasury (+28% fee) without responding to my OIC, or offer counteroffers in bad faith. I had other obligations from the business failing and ultimately I settled them all, its only this process which has been (seemingly) impossible to resolve.

    Thanks,
    -EJ

  2. #2
    Join Date
    Oct 2014
    Posts
    8,238

    Default Re: Can You Sue the SBA for Bad Faith in Settling a Loan

    You’d need to see a civil litigation attorney familiar with suing the federal government in order to get a good answer on whether you might have a claim to pursue. I can’t offer any particular opinion on that matter as I’ve not seen all the documents involved and do not have the full background of what happened. But let me give you some thoughts that might help you.

    First, you allege in point (4) of your time line that Treasury made a counter-offer that you accepted and that Treasury then came back and rejected 6 months later. The issue here is whether the purported counter-offer was something that would become a binding contract upon your acceptance of the offer. If the answer is yes, then the contract was in place when you accepted it and then the issue would be whether either of you breached that contract. I have no information on what the terms of the contact would have been or what the parties did after you accepted it, so I have no idea if any breach might have occurred by either party. If there was a binding contract, then you might potentially have a claim to enforce that contract if the government breached it. Breach of contract claims against the federal government are specialized area. If amount involved in the dispute exceeds $10,000 then the case must be litigated in the U.S. Court of Federal Claims, which sits in Washington, DC. You do not get a jury for these cases; the Claims Court judge makes the decision in the case.

    The biggest problem for a contract theory here is that contracting with the federal government is not like contracting with a private party. The federal government is only bound by a contract when the contract has been signed-off by an official who is desginated as having authority to approve that contract within th agency. You cannot argue apparent authority here like you might in a private contract case. The agency likely sent you an offer that was subject to approval after you had agreed to it. It is quite common for agencies to use a process where they make a proposed offer, you accept it, and then the entire file goes to the actual person in the agency who has the power to bind the government for his/her approval. The contract is not concluded and binding against anyone until that final approval is given. In the case of OIC negotiations, this can take a lot of time. I used to work some OIC cases for the IRS while an officer for that agency a number of years ago. The approval process at that time took at least several months because the file had to go from the revenue officer to his/her manager for approval, then to IRS counsel for a legal review, then several other managers up the chain finally to the official who had the authority to approve the OIC and bind the agency. At any one of these stops in the review process it might get rejected. The SBA may well use a similar process. If so, then the contract was not concluded until that authorizing official signed-off on it, even though the loan officer originated it and you signed it because the loan officer likely did not have the power to bind the government. The loan officer should have made that clear to you (I always made that clear to taxpayers) but if he or she didn’t it doesn’t change how this comes out.

    The second issue is whether you would have a tort claim here either for negligence or for negotiating in bad faith. A tort claim would be brought against the federal government in the U.S. District Court for the district in which you live or where the business is located depending on the circumstances. You do not get a jury in tort claim cases against the federal government either. The District Court judge decides the case.

    For a negligence case you generally must prove that the government owed you some duty, that the government breached that duty, and that as a result of that breach you suffered some harm that resulted in legally recognized damages. The SBA has no duty to you to approve an OIC; that is discretionary on its part. Nor is there a duty to render a decision on an OIC within any specific time frame. You bounced around for several years with OIC submissions and negotiations but never reached a final deal. SBA delay, changes in staffing, and shuffling of the matter between the SBA and Treasury etc contributed to that but I don’t see a good negligence claim to bring based on mere delay and the bureaucratic machWiinations that were going on. With OIC situations you typically have to really stay on top of things and keep following up with agency to ensure the matter gets pushed along to a resolution. It is more important for you to get the OIC done than it is for the government, after all.

    I don’t see anything in your post that clearly shows that the government acted in bad faith (i.e. dishonestly or unreasonably) in negotiating the OIC. So even if there as an obligation to negotiate in good faith here you may have trouble proving that the government’s actions were in bad faith. How will you show that there was bad faith as opposed to simple bureaucratic delay? Remember that as the plaintiff you bear the burden to make the case for the bad faith and you need evidence to support it.

    Whether it is a contract claim or a tort claim, you must first present your claim to the agency itself. If the agency denies your claim, you need to exhaust any agency appeal rights you have first before going to court. There are time limits to all of this. Litigation against the federal government is generally neither fast nor cheap. The federal government will be represented in court by attorneys of the Department of Justice who specialize in litigating the type of claim(s) you are pursuing in the court that you file them. The federal rules of civil procedure and evidence are complex, and given that there is a discovery process and that there may be one or more pre-trial motions for the court to resolve, it may well take a couple of years to fully liitgate this. Unless you might win a substantial amount of damages, I doubt you’ll find a lawyer to take this case on a contingent fee basis, so be aware of that when discussing this with attorneys. Find out what your likely chances are to win any claim the lawyer says you may have and what it is likely to end up costing you.

    It is possible that bankruptcy might provide you a better outcome than the OIC would anyway. You ought to discuss that with a bankruptcy lawyer.

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