Across today’s rapidly changing and often tumultuous financial landscape, lenders face new and elevated dangers - from fluctuating interest rates and inflation, to recessionary threats and payment delinquencies. Yet even in stable financial periods, lending carries inherent risk, making lien perfection a critical practice regardless of market conditions.
Lien perfection is the process of ensuring that a lien is correctly recorded, maintained, and legally enforceable. When executed properly, the procedure enables lenders to protect their claim on the title of a secure asset.
Yet lien perfection is complicated and labor-intensive, making it imperative that financial institutions take the following steps to mitigate potential dangers throughout a loan's lifecycle:
1. Analyze your position with every debtor and pinpoint unperfected loans.
Unperfected liens often result from incomplete or incorrect data such as debtor name changes, mismatched jurisdictions, and instances where a name listed in a UCC does not match an entity’s legal name. An error as simple as a missing comma or period can challenge the legal validity of a lien (e.g., the UCC lists “Brand Surgery Center LLC” as the debtor, but the legal corporate name is “Brand Surgery Center, L.L.C.”). A portfolio risk assessment can help lenders gain visibility into lien positions and protect against these threats.
Manual processes, inaccuracies, and tedious rekeying of information hamper a financial institution’s ability to conduct due diligence and make fast, well-informed lending decisions. By using an online search tool, lenders can harness the most current public records across multiple jurisdictions, helping them to more quickly and confidently determine collateral and borrower risks before lending.
2. Manage ongoing UCC requirements.
Solutions with built-in validation tools help lenders streamline UCC filings - enhancing productivity, simplifying jurisdictional requirements, and enabling more accurate and efficient filings.
UCC filings expire after five years, so lenders must file multiple continuations throughout the lifespan of a loan for the lien to remain active. Tools such as Auto Continuation can help lenders avoid lapses and errors, improve the filing process, and ensure continuations occur automatically.
A lack of visibility into lien position, activities against debtors, and pending UCC expirations can increase risk for lenders, especially for those who acquire portfolios in short timeframes. By deploying a solution that can access lien data across public records, lenders gain access to convenient reports that detail these conditions. By isolating potential concerns, lenders can immediately know the number of unperfected liens and may respond proactively to correct them.
Receiving notifications for events such as debtor name changes, dissolutions, loss of good standing, and other aspects that could compromise lien position helps financial institutions proactively resolve issues. An effective monitoring solution provides the visibility lenders need to better protect their ability to collect.
3. Seamlessly resolve portfolio issues.
Most lenders lack the manpower and expertise necessary to complete continuous UCC amendments, especially when relying on manual processes. Business growth, seasonal peaks, and portfolio acquisitions can further strain staffing, heightening the likelihood of human error and oversight. Using a service that can file bulk amendments as needed improves productivity, reduces errors and delays, and ensures that filings and updates are completed accurately and in a timely manner without stressing internal resources.
Missing or disorganized information is another risk to lien perfection that is magnified for lenders who acquire large portfolios. To keep the entire portfolio perfected, it is essential to update liens to reflect any gaps in data and perform a data scrub on the acquired assets. A portfolio cleanup service can easily identify and import missing UCC filings, remove duplicates, correct entity information, and properly categorize individuals and businesses.
Once the portfolio is in order, activating a UCC legacy monitoring solution will help ensure that liens are continuously examined for accuracy.
4. Maintain a complete and accurate portfolio view.
Because many financial institutions use multiple agencies for their UCC filings ― including law firms, title companies, or multiple third-party providers ― it can be tough to maintain a complete and accurate view of a portfolio. Lenders can solve these challenges by leveraging tools like Portfolio Sync, which brings together UCC filings across all portfolios into a single view, making it easier to take prompt action on liens that require attention.
When it comes to maintaining lien perfection, what you don’t know can definitely hurt you. Yet with the right solutions and services, lenders gain the tools needed to diagnose issues that impact their lien position, remediate the problems, and prevent further risks.
