Or. Admin. Code § 123-021-3400 - Loan Defaults, Liquidation Plans and Payment of Insurance Claims

(1) A Financial Institution shall notify the Department within 30 days of a Borrower's default on an insured loan.

(2) If the Borrower fails to cure the default and the Financial Institution anticipates writing off all or a portion of the loan's outstanding principal balance, the Financial Institution must submit a liquidation plan for Department review and approval prior to the Borrower or the Financial Institution liquidating any assets pledged to secure the loan. The liquidation plan for the defaulted insured loan shall be in a form prescribed by the Department and shall include, but may not be limited to:

(a) A copy of the lender's credit approval memo and supporting documentation of the loan;

(b) Personal financial statement(s) for the Borrower's Principal(s);

(c) Itemization of all business and personal assets including, but not limited to, real estate, equipment and other chattel, accounts receivable, inventory, and intellectual property securing the loan. The inventory of assets shall include information on the status of the lender's liens, current priority of lien positions on personal and business assets, current retail valuations of the assets, and anticipated discount of the assets for liquidation.

(d) Identification of any security that is unavailable to satisfy the loan and description of the reason(s) why the security is unavailable, for example, foreclosure by another lender;

(e) A written explanation describing the extent to which the lender plans to exercise its right to recover its loss by foreclosing on or otherwise liquidating collateral securing the loan; and

(3) Unless waived by the Department, all post-default recoveries and payments received by the Financial Institution shall be applied first to the Deficiency and then, if the Deficiency is repaid in full, the Financial Institution's unpaid principal balance, collection costs, legal costs, environmental remediation expenses and other collection-related expenses available to it under the Lender Agreement.

(4) Upon the Borrower's failure to cure its default under an insured loan, the Financial Institution shall collect on the loan in accordance with the approved liquidation plan. After making all commercially reasonable efforts to collect the Deficiency pursuant to the liquidation plan, the Financial Institution shall submit its claim for any Deficiency balance in a form prescribed by, or acceptable to, the Department. The Department will thereafter review the claim and any supporting documentation the Department may require in its sole discretion. Upon approving the claim, the Department will pay the claim in a single-lump sum payment. The balance of any loss not covered by Program insurance is absorbed by the Financial Institution.

(5) For Conventional Insurance, Evergreen Insurance, and Construction Loan Insurance, the maximum amount of a claim shall be the insured percentage times the unrecoverable Deficiency of the insured loan after applying proceeds from liquidation of the collateral, post-default payments by the Borrower or guarantors, right of intercept on account receivables, proceeds recovered from guarantors and any other sources of repayment identified in the Financial Institution's loan approval and the Loan Insurance Authorization.

(a) To be eligible to make a claim on Construction Loan Insurance, unless otherwise waived by the Department, the Financial Institution must complete project construction sufficient to conduct an orderly liquidation of the project assets, which may include obtaining an occupancy permit and any other permitting necessary to maximize the liquidation value of the project assets.

(b) Within 30 business days of obtaining any loan recovery after the Department's payment of the claim on a Deficiency, the Financial Institution shall remit to the Department a pro rata share of the recovery equal to the loan's insured percentage. For example, for a loan covered by Construction Loan Insurance that insured 80% of the principal balance of the loan, the Financial Institution shall remit 80% of the post-claim recovery. Should the Financial Institution fail to timely repay recovered proceeds to the Department, the Financial Institution shall be in default of its Lender Agreement and shall be excluded from participation in the Program until the default is cured to the satisfaction of the Department.

(6) For Collateral Support Insurance:

(a) The maximum amount of a claim shall be the insured portion of the loan remaining after applying the proceeds from liquidation of the collateral, post-default payments by the Borrower or guarantors, right of intercept on account receivables, proceeds recovered from guarantors and any other sources of repayment identified in the Financial Institutions loan approval or the Loan Insurance Authorization. Recovered proceeds are applied first to the uninsured Deficiency and then to the insured Deficiency.

(b) Should any additional recoveries occur after payment of the claim on a Deficiency, the recovered proceeds shall be applied first to the uninsured Deficiency, then to the insured Deficiency.

Notes

Or. Admin. Code § 123-021-3400

OBDD 28-2023, temporary adopt filed 10/13/2023, effective 10/13/2023 through 4/5/2024; OBDD 2-2024, adopt filed 03/06/2024, effective 3/8/2024

Statutory/Other Authority: ORS 285A.075 & ORS 285B.200 - ORS 285B.218

Statutes/Other Implemented: ORS 285B.200 - ORS 285B.218