If you put up real estate as collateral for a SBA disaster loan, you could lose the property to a foreclosure if you don't make the required payments.
The U.S. Small Business Administration (SBA) provides loans to homeowners, renters, and business owners to help them rebuild their home, replace their belongings, or repair a business following a natural disaster. But if you put up real estate as collateral for the loan and later default by failing to make the payments—or you breach the loan agreement in some other way—the lender might foreclose. Read on to learn more about SBA disaster loans and foreclosure of these loans.
How SBA Disaster Loans Work
The SBA offers low-interest, fixed-rate loans to homeowners, renters, and businesses who have suffered damage as a result of a natural disaster.
How you may use loan proceeds. The borrower may use the loan proceeds to fix property damaged or destroyed in declared disaster areas, or to pay for economic injuries caused by a natural disaster.
Available loan types. The four types of available SBA disaster loans are:
- Home and Personal Property Loans (for homeowners and renters)
- Business Physical Disaster Loans (for businesses)
- Economic Injury Disaster Loans (for businesses), and
- Military Reservists Economic Injury Loan (for businesses).
Who provides the loan. The SBA might issue you a disaster loan itself or the loan might come from a participating lender. If you get your loan directly from the SBA, then the SBA will service (manage) the loan. If you take out the loan from a participating lender, that lender is responsible for servicing your loan. (Learn more about Getting an SBA Loan After a Natural Disaster)
You might have to put up collateral to get the loan. Because SBA disaster assistance is given in the form of loans, not grants, borrowers must agree to pay the money back. For certain SBA disaster loans, borrowers have to provide collateral for the loan. In some cases, this means that the borrower must allow the lender to place a lien on the damaged home or on replacement real estate. In other cases, the lender might require the borrower to give the lender a security interest in personal property. Or the lender might require a lien on both real estate and personal property.
Foreclosure of SBA Disaster Loans
If the borrower defaults on the payments for a disaster loan that's secured by the borrower’s home or other real estate, the lender can foreclose on the property. The foreclosure will be either judicial (through court) or nonjudicial (outside of court supervision) depending on state law and whether or not the mortgage contract has a provision granting a power of sale.
If you’re having trouble making your SBA loan payments due to reasons that are substantially beyond your control, you might be able to work out a way to avoid a foreclosure. For example, you may request that the SBA suspend your loan payments or extend the loan maturity date (or both) to give you with some relief.
Getting Help
If you’re currently facing a potential foreclosure due to nonpayment on a SBA disaster loan, consider talking to a local foreclosure attorney to learn about different options for your situation.
If you’re behind on payments for a mortgage that you already had when the disaster hit, see Help for Homeowners Facing Foreclosure After a Natural Disaster: Foreclosure Moratoriums to learn about foreclosure relief after a natural disaster.
For more information about SBA disaster loans, go to the SBA Disaster Loan Assistance website. To learn more about other available disaster programs, go to DisasterAssistance.gov.
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