What is the course of actionagainst aborrower who is defaulting on loans?

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What is the course of actionagainst aborrower who is defaulting on loans?

We sold our business in 2004 with the borrower obtaining a $400,000 SBA loan, along with Seller financing of $50,000. The borrower is in default of both loans and we receive a Standby Creditor’s Agreement dated 09/09 and have received no further action by the lender’s SBA department. I contacted them and was told that it does not look good for either us for any repayment. The borrower is still operating the business and owns 3 real estate properties. What is our recourse to getting paid on our loan with 3 real estate assets and why is he still operating the business without paying the loans?

Asked on November 4, 2010 under Bankruptcy Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

The borrower is still operating the business without paying the loans because the two don't necessarily have anything to do with each other--it's not illegal to run a business while defaulting on obligations. Instead, it's up to the creditors to sue to recover their money. In that regard, it's good for you that he has assets and (seemingly) a viable business--the provides the opportunity to get paid, since if he doesn't pay voluntarily, it may be possible to garnish his wages, to garnish his or the business's bank account, to put a lien on property, etc. If he was destitute, there'd be far less likelihood of recovery. You should consult with an attorney who can evaluate the sitatuation, explain what income or assets you might have recourse to (it could be his personally; the business's; or both--it depends on who took out the loan, who guaranteed it, and how the business is structured), whether its worth suing, and, if it is, file the suit on your behalf.


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