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SPM #12 provides an in-depth review of the laws governing all aspects of the collection process with regard to commercial
and consumer loans (secured and unsecured), including some of the procedural aspects of litigation. The Manual represents
a comprehensive and understandable review of issues such workout strategies, non-judicial foreclosure of various forms of
collateral, commercially reasonable disposition of personal property collateral, and the current expected credit losses (CECL)
methodology. The most recent version of the Manual now includes a discussion of Senate Bill 1286 which became effective January 1, 2025,
and expands the scope of the Rosenthal Fair Debt Collection Practices Act to include certain commercial debt (refer to Section III.K.1.
of this Manual for a more detailed discussion). The text of this Manual is 601 pages, plus 21 pages of Appendixes.
Section II. discusses structuring loan workouts, including identifying a problem loan, appropriate due diligence prior to
a loan workout, and documenting a loan workout.
Section III. addresses the extensive regulatory issues affecting loan workouts, such as real estate appraisal regulations,
handling impaired loans, internal review and classification of loans, the California and NCUA rules regarding the capitalization
of interest, OREO requirements, in-substance foreclosures, the California and federal Fair Debt Collection Practices Acts,
reporting discharges of indebtedness, the CECL methodology and the allowance for credit losses under CECL, and the federal and
California UDAP/UDAAP/UCL statutes.
Section IV. reviews the bankruptcy issues affecting loan workouts and collections, including the automatic stay,
preferences, fraudulent conveyances, reaffirmation of a debt, and post-petition financing.
Section V. deals with a creditor’s rights and remedies upon default. The topics addressed in this section consist of events of
default and acceleration clauses, recovery alternatives, bankers’ right of setoff and the banker’s lien, the procedures for collecting
a loan from a deceased borrower’s estate, and a junior lienholder’s request for notice of delinquency.
Sections VI. addresses foreclosing personal property collateral. Topics addressed include servicemember protections, competing
lienholders, collection rights in connection with accounts receivable, contract rights, and negotiable instruments, sale of pledged
securities, and the repossession procedures in connection with automobiles, undocumented vessels, and recreational vehicles.
Section VII. addresses foreclosing real property collateral, discussing such topics as nonjudicial foreclosure procedures
(including the California Homeowner Bill of Rights), judicial foreclosure procedures, bidding strategies at foreclosure sales,
deeds in lieu of foreclosure, the one-action rule and anti-deficiency limitations under California law, and handling mixed collateral
transactions.
Section VIII. discusses the foreclosure procedures involved with manufactured homes, mobile homes, truck campers and floating homes.
Section IX. examines the procedures for enforcing guaranties, as well as the terms a well-drafted guaranty should
generally include (such as waivers), and a guarantor’s defenses to the enforcement of a guaranty.
Section X. addresses the laws governing collateral seized under the federal and California asset forfeiture laws.
Section XI. provides a review of civil proceedings in California superior courts, and Section XII. discusses small claims court proceedings.
Section XIII. examines the issues involved in arbitration proceedings, such as the enforceability of arbitration clauses,
arbitration procedures, AAA and JAMS services, judicial reference, and mediation.
Section XIV. provides a detailed discussion of California’s Enforcement of Judgments Law under the California Code of Civil Procedure.
Section XV. addresses the topic of credit disability insurance and a creditor’s rights and remedies.
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Compliance Companion
Compliance Companion® is a one-stop regulatory compliance resource for financial institutions.
This online compilation of 19 industry-leading compliance manuals, including this SPM #12, Loan Workout & Collections,
takes the legalese out of federal and California laws and regulations, making it easier to understand and keep up with ongoing compliance developments.
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