Report 12-17: The SBA Risks Loss of Collateral on Four Disaster Loans Totaling $5.6 Million

This advisory memorandum presents information related to a finding identified while assessingthe Liquidation of Disaster Loans at the National Disaster Loan Resolution Center (NDLRC).   The overall objective of the audit was to assess the NDLRC’s effectiveness in managing disaster loans in liquidation to maximize debt recovery and minimize losses.

During the audit, the OIG reviewed a random statistical sample of 65 disaster loans charged off by the Santa Ana NDLRC.  The sample included two defaulted loans the Small Business Administration (SBA or the Agency) approved for a Florida condominium complex.  The SBA approved four loans to this condominium complex; two loans are current, while the two are in default.  The OIG discovered that the Uniform Commercial Code (UCC) financing statement had lapsed for one loan the SBA approved for this condominium complex.  The loan was in servicing at the Birmingham Disaster Loan Servicing Center and had an unpaid a principal balance of approximately $1.3 million.  One other loan the SBA granted to this condominium complex also remains in servicing, however, the NDLRC charged off two defaulted loans it granted to the condominium complex.  Each of the defaulted disaster loans had an unpaid principal balance of $1.5 million.