Messick failed to seek an independent project appraisal, nor structural engineer report even after Wood informed Compass of the need to replace more than half of the roof trusses. Instead, Compass relied on Wood to provide both, not following standard banking practice and the bank's policy to seek both.
The new deal hatched by Messick and McGee continued to violate SBA protocols by not being in compliance with regulations for the 504 loan program which requires it to be proportioned 50 percent provided by compass, 30 percent by SWFC and 20 percent by Wood. Forcing a take it or leave it deal on Wood that looked more like 21/21/58 where Inspiridor picked up the lions share of the new construction costs. Knowing that this new structure would ensure the company's failure and in clear violation of SBA standards for the 504 loan program.
BWFC and Compass continued with their efforts to defraud the SBA and swindle Wood and her husband out of their company, property and money until 2012. When Wood had to file for bankruptcy in an attempt to prevent an illegal foreclosure.
This is where the two con-men wanted Wood to end up. They knew from having conducted similar moves in the past that she would run out of money, as they filed a mountain of motions to overwhelm Wood's attorney.
"Victims of lender fraud are rarely in a position to finance their own litigation because their primary source of income was harmed by the lender, even if they do, try and find legal experts who aren't compromised by conflict of interest, you'd be hard pressed at best," said Howard.
"Compass Bank had no right to foreclose on Dilia's property because it was a co-conspirator with BWFC in fraudulent activities, the entire transaction was tainted by fraud making the promissory notes, their modifications and extensions unenforceable," said McDonnell. "Neither Compass nor BWFC should have been allowed to profit from their bad faith and fraudulent activities, much less continue in their preferred lender status but since the SBA relies so much on lending institutions to self-report issues, they were allowed to get away with it with little consequence."
The experience of Wood and Roberts with Compass Bank and SWFC doesn't seem to be an uncommon one but until the SBA-OIG reduces its reliance on lender self-reporting, creates and promotes avenues for borrowers to report problems they are having with their lenders and can dedicate the manpower to look into these issues it will be impossible to get an accurate read on how bad the problem is.
" Most victims of lender fraud don't have any tangible evidence of the fraud and even when they do they don't recognize it for what it is, because by they're nature they aren't experts in SBA program or banking law, so they don't even know what they're looking at," said Howard. "The complexity of these programs and their wealth are the best defense for lenders against fraud claims."
Given the complex nature of banking law, SBA regulations and program policy, the lack of expertise or access to experts on the part of borrowers lessons can be learned from the establishment of the Equal Employment Opportunity Commission, which provided victims of discrimination with a vehicle for filing complaints that will be investigated by experts empowered to confirm employment discrimination claims.
When Congress created the Equal Employment Opportunity Commission it used a legal president known as res ipsa loquitur, translated, the thing speaks for itself. The doctrine presumes that if someone has exclusive control over whatever cause an injury then they are presumed negligent if someone is injured by their product and that without negligence the injury wouldn't have happened.
This principle would shift the burden of proof from the victim to the lender. Victims would have better chances in the court system where they are currently outgunned, leading to a rapid increase in successful predatory lending litigation comparable to that federal civil rights litigation before and after the creation of the Equal Employment Opportunity Commission.
"I was working in the housing industry when the mortgage crisis hit, I see a lot of similarities between what was going on in the housing market and what's happening in the 504 and 7a programs." Said Mary Fran Riley, Senior Vice President, External Affairs at Accion. "If the SBA doesn't change course to increase its oversight of participant lenders, we could be heading for another crash."
The Aspen Institute, Responsible Business Lending Coalition along with regulators, elected officials and lenders have called for a Small Business Borrowers Bill of Rights to protect Small businesses from predatory lenders, educate small business owners on what they should expect from lenders and brokers and to encourage accountability in the small business lending industry.
" Small Businesses are the backbone of the American economy, they have a basic right to transparency in pricing and term, to non-abusive products, responsible underwriting, fair treatment from brokers, to fair collection practices and inclusive credit," said Pherabe Kolb Communication Director at Aspen Institute.
Small Businesses are one of America's most critical economic drivers, creating millions of new jobs every year.
Taxpayers and small business owners need to know the SBA is doing everything in its power to protect them from predatory lending in the small business sector.
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