BBVA Compass Bank and Southwestern Business Financing collude to manipulate the SBA 504 Loan program?

“Minority Woman-Owned Business” is a very specific title that fits a public policy purpose by a Congressionally-mandated program to support economic growth in our country.  The United States Small Business Administration (SBA) is the catalyst known for being highly regulated with the intention of making credit accessible.  For entrepreneurs and those who dream of owning a small business, the SBA provides hope of achieving the American dream.

Inspirador was a small business idea, a dream and the passion of a “Minority Woman-Owned Business.”  The owner and creator, Dilia Wood had a vision of building a venue to inspire one-of-a-kind weddings and to provide a unique service model concept to manage all the details of each couples dream day.

Through the SBA 504 loan program, her American dream became a reality allowing her to build the location and service model she had envisioned.  During her research, The SBA 504 Loan program was touted as a loan assistance program that was heavily regulated, leaving no room for shenanigans or tricks. It seemed like a safe and sound program to leverage as a novice borrower, or so she thought.

As a “minority woman-owned business” of African-American and Hispanic descent, to the banks she was the poster child for an SBA loan. The reality was, without the SBA her chance of starting her dream business would have been restricted.

However, the truth is because of the SBA, her dream was callously stolen by the very individuals trusted to administer the program!

How? Well, Inspirador (Spanish for inspiration) was growing year after year and creating jobs in the community.  Her concept was in practice.  Her theory of a business idea had proven to work.  Despite one of the worse economies in history; Inspirador was an SBA success story!

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It was ready to grow and expand, but at its peak Inspirador was swiped out from underneath her by the very individuals she thought wanted her to succeed. She was wrong.

Unfortunately, other small business owners across the country have been wrong too. The difference is that those small businesses ended up in bankruptcy and failure as a result and had no idea what hit them.

In the case of Inspirador there is real evidence backing up the allegations.  Marie McDonnell, a credentialed Certified Fraud Examiner recognized for her findings in the infamous robo-signing scandal featured on 60 minutes; reviewed the documents in the Inspirador case. From the 96 page report (excerpt below) the preliminary findings concluded that:

“Compass Bank has no right to foreclose the Property because it has dirty hands and should not be allowed to profit from its bad faith and fraudulent activities”

Pages from Expert Forensic Mortgage Fraud Examiner Findings_Page_3

Many of the documents, emails, letters and government certifications made available by a court ordered subpoena are shared on this blog which,

PROVE

BBVA Compass Bank and Southwestern Business Financing Corporation (SBFC) colluded to manipulate the SBA 504 Loan program for their own nefarious motives.

To fully understand all of the intricacies of this harrowing story, let’s go back to

The Beginning:

To create Inspirador, it was necessary for Dilia to own the real estate and not just lease it.  With this in mind, the SBA 504 Loan was presented to her as the ideal solution.

It would be an old 12,000 square foot junk shop in a distressed downtown district that she dreamed of rehabbing for the Inspirador project.  It was not for sale at the time.  The owner made it clear to her that he had no intentions of selling his property to anyone in the local community.  It could have been because she was an outsider and new to town, or maybe because of her dream, but he eventually agreed to sell it to her for $1,350,000.

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It was an intriguing property because it -

  • Was located in the heart of downtown
  • Was listed on the historic registry (originally the O.S. Stapley Hardware Co.)
  • Included four lots and air rights
  • Had potential to continue to grow with the business.

But since it was originally built in 1916, the property needed a great deal of work.

Dilia hired a structural engineer to determine if the location could be salvaged for the Inspirador project.  Everything came back in good condition except the report noted:

“Engineers highly recommends another inspection of the roof structure”

structural report

The property qualified for a city grant to renovate the exterior to its historic characteristics.  It was estimated that the grant could be at least $250,000 and as much as $400,000.  The city was excited to see revitalization taking place and supported her project fully.  Dilia was excited to be a part of the downtown revitalization.

The Funding Began:

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BBVA Compass Bank stepped in to fund the project through an SBA 504 loan, partnered with a non-profit lender known as a Certified Development Corporation (CDC) who is licensed by the SBA to administer these loans.

BBVA Compass would not provide funding without the SBA guarantee.

compass wont wo cdc

There were only two CDCs in town and Southwestern Business Financing Corporation (SBFC) was the CDC of choice.  A bank and a CDC are both required.

Dilia went through the laborious and daunting task of applying for the SBA 504 Loan and was approved based on the condition that she contribute 20% of the total project costs in the amount of $460,000. She had what a banker calls ”skin in the game” and a lot of it.

The financing would be based on “total project costs” divided between the three parties (50% + 30% + 20%):

  • BBVA Compass would provide 50% secured by a first lien
  • SBFC who represents the SBA would provide 30% secured by a second lien that would be 100% guaranteed by the SBA
  • Dilia would contribute 20% as “borrower’s equity” in the amount of $460,000

The original Total Project Costs were $2,079,900.00 –and may have been the largest start-up SBA 504 in Arizona history.

The value of an SBA loan to a borrower is that you receive better than market interest rates with longer terms, no balloons, no early calls, etc. In Dilia’s case she would receive a 20-year note on both loans.

Robert D. McGee, President of SBFC imposed an additional and unique condition on Dilia’s SBA 504 loan application. He required that “Prior to funding, establishment of a restricted working capital account, with minimum proceeds of $250,000.  Half of the required proceeds will be used as a payment reserve and half will be used for project related working capital needs.” The city grant of $250,000 was the only verified source to satisfy this condition and the SBFC Loan Committee approved the condition.  Dilia agreed.

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When you are approved for an SBA 504 Loan you are issued an “SBA Authorization for Debenture Guarantee,” establishing the terms and conditions of the loan agreement. Dilia received her Authorization and her official SBA Loan #24404960-08 in September 2006.

Following that, BBVA Compass began its due diligence of the project and secured a $5,000 fee from Dilia to conduct their version of an appraisal and an additional structural engineer report due to the age of the property.  This additional review of the structure would address the concerns that her engineer had regarding the roof trusses.

Based on the purchase price of the property of $1,350,000 plus estimated construction costs of $547,000, the appraisal came back with an “as-if completed” value of $2,300,000. Loan closing was scheduled.

SBA 504 financing is unique in that it requires the first lien lender, BBVA Compass, to advance 80% of the project up front at closing. 30% of their advance would be reimbursed by SBFC if the project was completed as approved by the SBA.

BBVA Compass was bound to the rules, regulations and the Authorization of the SBA.

SBA 504 Loan Approved:

The property was purchased November 14, 2006 -Both loans closed and everything seemed to be going normally and smoothly until…

Broken Truss-3

  • Early 2007 when 6,000 square feet of roof trusses were found broken and splintered beyond repair.
  • The necessary repairs increased the construction costs by an additional $471,000
  • April 24, 2007 BBVA Compass approved the full increase when they submitted their Modification to the Promissory Note increasing both loans.
  • BBVA Compass increased their first lien from $1,039,900 to $1,400,000

BBVA Compass CONCEALED these “material changes” from the SBA!!

 

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It was from the moment the broken roof trusses were discovered that BBVA Compass and McGee worked in a seemingly calculated manor to conceal the fact that on April 25, 2007 BBVA Compass increased their first lien to $1,400,000 from the SBA.

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It was after the loans were increased when Dilia was unexpectedly called into a meeting by two BBVA Compass Senior V.P. loan officers she had never met before: Burt Messick and Michael Monterrubio.

It was in that long and heated meeting that Messick divulged that BBVA Compass never ordered the structural engineer report and she later learned they never ordered the second appraisal she was charged for either. BBVA Compass had a $2.6million project with an old $2.3million appraised value and no evaluation of the structure.  Not good for a bankers career.

Messick and Monterrubio wanted to shift their failure to perform their due diligence onto Dilia to fix their problems.  They tried an intimidation tactic where they demanded she agree to,

“hand over the $250,000 city grant funds to pay down Compass’s  first lien plus $50,000 cash up front.”

She was shocked and it was a request that would be intimidating for any small business.

BBVA Compass, a premiere SBA lender, wanted to seize without disclosure to the SBA the same grant funds that were required of Dilia by the SBA to be used for her working capital and mortgage payments? Their gruff demand was clearly a blatant attempt to force her start-up business into predestined failure out of the gate.  She declined.  Her answer was NO.

Dilia later received an email from the BBVA Compass SBA Lending Division notifying her to provide only the $50,000 contribution to cover her 20% of the project cost increase, which she did. Her borrower’s contribution was by then $510,000.

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In the email BBVA Compass did not mention the $250,000 Messick and Monterrubio wanted her to turn over. McGee moved on his end to get the SBA’s approval for the loan increases through a “327 Stamp Action,” an SBA formality to request a change to the Authorization.

In the 327 and more than 14 documents
Robert D. McGee, President of
Southwestern Business Financing Corporation
MISLEADS the SBA about the project

    • Construction costs increase = $220,000
      (actual increase $471,000)
    • BBVA Compass first lien (Third Party Lender Loan) = $1,150,000
      (actual lien = $1,400,000)
    • Total Project Costs = $2,300,000
      (actual total = $2,600,000)
    • Borrower’s Contribution (Dilia) = $460,000
      (actual contribution = $510,000)
    • Borrower’s Contribution Percentage = 20%

327stamp_Page_1327stamp_Page_2327stamp_Page_3

The 327 was a blatant lie to the SBA about this 504 loan. It was later discovered that this 327 concealed more than $300,000 of unreported cash to the SBA; while the woman-owned small business was left in the dark.

Construction was completed by October 2007 and the subject of the grant funds never came up again.  She had successfully cleared all of the conditions of the SBA 504 loan and everything was ready to complete the SBA funding process.

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However, it turned out that even though she declined to hand-over the $250,000 city grant funds; Messick and Monterrubio internally went ahead and underwrote the loan increases with the condition that she would and without her written consent.

It appears from email strings that BBVA Compass took calculated steps to make sure there was no written or signed agreement for the BBVA loan condition

The BBVA Compass Deed of Trust requires written consent.  No written agreement would perhaps prevent any trace of evidence that they planned to seize the only verified source of working capital for her start-up business.

According to an email McGee sent to BBVA Compass regarding the $250,000 city grant;

“Since it’ll be gone before we fund”

the side deal would work and the SBA would never be the wiser about the “material change”.  The woman-owned business would never know what hit her.

McGee Email under

In January 2008 Dilia was formally awarded the grant from the City for completing the historic renovation project.  It was an exciting and thrilling moment because it meant she could officially get her business truly started, hiring staff and hosting those one of a kind weddings she had dreamed of.

Then, Messick popped up again.

He knew somehow, without notice from her, that she received the grant.  He wanted it.  He demanded it. He confessed he didn’t care what the SBA knew or didn’t know.  Her original loan officer from the CDC instructed her not to give up her working capital. She was stuck.  Only one of three things could happen:

  1. If she gave him the money she feared she would default on her SBA guarantee
  2. If she didn’t give him the money he threatened to default her on the BBVA Compass loan
  3. If she gave him the money her start-up business would have no working capital or a way to make the first mortgage payment.

She couldn’t win.  It was do or die.

In a panic, Dilia tried calling her original loan officer from the CDC for help.  However, it was too late SBFC President, Bob McGee had mysteriously issued a company-wide gag order restricting any employees from speaking with her and even her loan officer was prohibited from assisting her.

The entire situation had her terrified and by that time, she had $510,000 of her family’s life savings invested in the Inspirador project that was going terrifyingly awry.

In the midst of this crazy meltdown, Dilia was summoned to the Mayor’s office to discuss the city’s interest to use her property for their new $74 million City Hall project.  Apparently, Inspirador was the perfect location to run a public pedestrian breezeway from old town to the new city hall. The entire City Hall project had been designed with this north/south alignment through Inspirador in mind and approval from City Council to allow the budget would hinge on this design idea.

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Turns out this old property had more interested parties than she could have ever realized.

During this time in 2008, BBVA Compass and McGee demonstrated a relentless desire to take ownership of the property, seize the grant funds and leave her start-up business in a position of intentional default.

BBVA Compass was creating a foreclosure where one was not needed.  When she didn’t “hand over the $250,000 grant funds,” McGee was in a quandary.  He had already lied to the SBA over and over again. In order to save himself, McGee pulled the SBA funding at the final hour leaving BBVA Compass holding the bag for both loans.

McGee secretly used that time to clean up his mess and he very busily manufactured a malicious cover-up scheme that would forever ban her from qualifying for an SBA loan ever again — just in case.

Since McGee never funded his portion of the loan one would think his interest in the property would dissipate with that as well. Not so with McGee, he found ways to keep his hands in the pot along with BBVA Compass for all those years.

In her efforts to obtain her SBA loan file Dilia submitted a formal request  through the Freedom of Information Act (FOIA)only to find out that it had been cleverly destroyed by McGee when he secretly wrote a letter on her behalf to cancel the loan!

cancel loan

Dilia called his offices directly to obtain a copy only to receive a certified letter from McGee explaining that the files were his property to protect and he would release them only if ”ordered by a valid subpoena”.

subpoena

McGee conveniently never removed his unfunded liens of $579,000 and encumbrances from the property title. In 2011 Dilia was forced to sue McGee to: remove the unfunded liens from her property title and finally obtain a copy of her “protected” SBA loan file

McGee was receiving annual notices from the property insurance company as an “additional insured”.  By September, 2011 BBVA Compass secured an updated property appraisal for themselves and McGee (3 years after McGee pulled funding).

appraisal for mcgee

For all these years Dilia was never privy to the long string of banker shenanigans being played by BBVA Compass and McGee. They concealed every bit of it from her and the SBA.  No one would have been the wiser had her small business failed.

0382_IceHowever, business was doing well, well enough that for almost five years she was making those mortgage payments of $12,850.00 in good faith.  McGee had saved himself, left BBVA Compass to fend for themselves and Dilia got tagged with a Hobson’s Choice:

“Take a 3-year balloon on the second lien and prove you can make the monthly payments or we’re taking ownership of the property”

What she also didn’t know was that the their secret cover-up scheme to ban her from qualifying for all of time from an SBA 504 loan gave them assurance that no other banker in the market would ever touch the loan for a refinance.

Every calculated step was BBVA Compass and McGee’s personal guarantee that they would eventually gain ownership of the property.

BBVA Compass Bank in fact did take ownership of the property on April 17, 2013 at 10:00 a.m. and forced the viable and popular Inspirador business to CLOSE unnecessarily.

She was making regular monthly payments of $12,850 and had paid more than $650,000 in principal and interest and $510,000 of her families life savings — all in good faith.  However, BBVA Compass wanted nothing short of her paying off McGee’s portion of the loan and gaining ownership of the property.  They REFUSED to term out the loan she proved she could service.  A civil litigation is pending.

Now that BBVA Compass OWNS the INSPIRADOR the public aftermath and local media frenzy that took place after has become an even bigger tragedy.  Now the dreams of many more good and decent people have been crushed at the hands of BBVA Compass Bank.




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