OAR 123-300-1001: Procedure for Making Claim for Reimbursement of Loss & Prioritization of Recovered Proceeds

(1) A lender shall notify the Department within 30 days of a default on an Enrolled Loan. (2) If the Borrower is unable to cure the default and the lender anticipates writing off all or a portion of the outstanding loan balance at the time of default, the lender must submit a liquidation plan for Department review and approval prior to the Borrower or the lender liquidating any assets unless otherwise authorized in writing by the Department. The liquidation plan for the defaulted Enrolled Loan shall be in a form prescribed by the Department which 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) A written explanation describing reason(s) the pledges or security is otherwise forfeit, worthless or undiscoverable; and, (e) A written explanation describing the extent to which the lender has attempted to exercise its right to recover its Loss with each respective pledge or security. (3) The lender shall execute the approved liquidation plan for an Enrolled Loan in default and liquidate the Borrower’s and the Principal’s assets as applicable and provided as collateral in the lender’s loan approval. As required by the Agreement, should a Borrower fail to cooperate in the liquidation of assets, the lender shall exhaust all other lawful remedies against the Borrower and its Principal(s) to recover and liquidate assets pledged as security, including but not limited to realization of claims on their personal or other financial guarantees or from other applicable sources. (4) If a lender anticipates writing off all or part of an Enrolled Loan as a result of a Borrower’s default, after meeting the requirements of section (3) of this rule, the lender may make a Claim for all or part of the Loss incurred by the Enrolled Loan in default by submitting a Claim in a form prescribed by the Department for the Department’s review and approval. (5) All proceeds recovered by the lender as part of liquidation process for a loan in default shall first be applied to the outstanding principal balance of the loan. After full repayment of the principal balance, the lender may apply recovered proceeds to interest, late fees and legal costs at the lender’s sole discretion. (6) The Department shall review a Claim for a Loss on an Enrolled Loan submitted under section (4) to determine if the lender has met the requirements of the Agreement and these rules. The Department may reduce or deny a Claim, in whole or in part, at its sole discretion, if the Department determines in its review of the lender’s administration of the Enrolled Loan that the lender failed to take action, consistent with these rules, the Agreement, the approved liquidation plan, and prudent business lending practices, to: (a) Appropriately secure personal or business assets during the maintenance period of the loan; or, (b) Work with the Borrower to liquidate the assets pledged as security for the Enrolled Loan in a reasonable and orderly manner. (7) Only upon the Department’s approval of a Claim, may the lender recover the outstanding principal balance of the loan from the lender’s Loan Loss Reserve Account or other amount as reduced by the Department in its approval of the Claim. Upon approval of a Claim, the Department shall prepare a written authorization for the financial institution maintaining the Loan Loss Reserve Account to disburse the approved Claim amount to the lender. (8) Notwithstanding the requirements of Section above, upon request of a lender, the Department may waive the lender’s collection obligation to pursue its rights against the personal or other financial guarantees of the Principals(s) and exhaust all lawful remedies if the Agreement conditions have otherwise been met and the following conditions have been met to the satisfaction of the Department: (a) The original amount of the Enrolled Loan was $25,000 or less; and (b) The Borrower and all Principals of the Borrower, including but not limited to all individually and jointly held assets, had a personal net worth not greater than $75,000 at both the time of application and the time of default. (9) A lender that does not comply with ORS 285B.791(2)(d), ORS 285B.791(3)(a), or section (3) and (8) of this rule with respect to the process and requirements of making a Claim against the Loan Loss Reserve Account, shall be considered to have breached the Agreement. The Department, at its sole discretion, may take assignment of the defaulted Enrolled Loan from the lender and pursue collection efforts for the benefit of the lender as provided in OAR 123-300-1301.