SBA Loan Default: Yes You Can Do a Short Sale Even with SBA or IRS Liens on Your Home

I hear it from small business owners all the time, a belief that they cannot implement a short sale on any of their assets including their home, if appropriate, because they understand the IRS or the SBA has a subordinate lien on their home, or in the case of the SBA even a subordinate mortgage. They make no effort to enter into a beneficial short sale or short refi when it would be a terrific resolution, believing they cannot accomplish this goal because of the liens or mortgages.

Not so! It can be done; a short sale or even a short refi can be accomplished in either case with the following principles in play...

By demonstrating you are selling for current liquidation value, and that the owner is to receive no distributions and that no distributions are permitted to anyone other than the priority lien holders in the order of filing, with nothing going to the borrower or any subordinate debt, then the SBA and the IRS will release the property to be sold short under such circumstances.

For the specifics of what documentation is required to achieve this result see the IRS Certificate of Discharge of property from IRS liens, IRS bulletin #783 for a full description of the requirements for such a transfer when an IRS lien is on the property. A similar requirement is on for the SBA.

It can be done, it is challenging and difficult but if you persist a short sale or even a short refi can be accomplished and the IRS or SBA will either release the property all together or subordinate to new financing depending on whether or not you are selling short or refinancing short...either one can be accomplished as described.

Get help f you need, there are plenty of experts who know how to navigate these tricky waters, or call us and we will arrange a no obligation teleconference.