2023 brought some volatile market conditions – banks collapses, rise in delinquent payments and decreasing commercial real estate values – which made financial institutions more susceptible to risk.
Lenders should protect their ability to collect by ensuring that a lien is properly recorded and maintained. Doing so enables lenders to protect their claim on a secure asset in the event of debtor default.
Although the process of perfecting a lien can be complex, there are five easy projects a lender can take to remediate issues, manage portfolio risk and maintain lien perfection:
Project #1 - File bulk amendments.
Most lenders lack the manpower and/or training necessary to complete ongoing Uniform Commercial Code (UCC) amendments. It is difficult to stay on top of debtor changes, especially when relying on manual processes. Business growth, seasonal peaks, and portfolio acquisitions can all strain staffing. These challenges often result in human error and oversight that can compromise lien perfection.
A bulk amendment filing service can supplement internal resources and run bulk procedures to bring portfolios up-to-date, so lenders can better manage portfolio risk.
Project #2 – Portfolio cleanup.
An unreliable view of the loan portfolio is another threat to lien perfection. It can result from missing or disorganized information. Although managing data is time-consuming, failure can pose a risk to a lender’s ability to collect.
A portfolio cleanup project can help lenders by identifying and importing missing UCC filings, removing duplicates, correcting entity information, and properly categorizing individuals and businesses, such as debtor name mismatch and jurisdiction mismatch, to remediate errors that can cause loss of position for commercial loans.
Project #3 - Lien data import and portfolio consolidation.
Another important remediation effort is to identify data gaps in liens. As organizations merge, differences and inconsistencies in processes and data quality can make it challenging for lenders to ensure that all debtor information is correct and complete ― opening the door to unnecessary risk.
Lenders can work with a team to import all their lien data into a consolidated portfolio. This reduces the risk of unperfected liens, as well as stress for organizations that lack the internal resources to complete the process. Once portfolios are consolidated, lenders can use automated monitoring to track debtor activities and act as needed to maintain ongoing lien perfection.
Project #4 – Corporate data scrub & legacy monitoring.
Maintaining a portfolio of Uniform Commercial Code (UCC) liens can be difficult and time-consuming. It requires constant monitoring. Proper identification of debtors, completing missing key entity information, and comparing or validating to public records is an ongoing effort.
By performing a one-time project of corporate data scrub and activating a UCC debtor and business entity monitoring for existing UCC-1s and/or UCC-1s via a UCC State Import, lenders can ensure that their liens are continuously monitored for accuracy.
Project #5 – Lien position report.
A healthy portfolio is vital to managing risk. It is critical that lenders should know their lien position for new and existing debtors on a timely basis. This cannot be done without the domain expertise and resources to ensure lien perfection and maintain their position.
Lenders should run a lien position report that can provide a comprehensive view of the entire UCC lien portfolio, including mergers and acquisitions activity (both a portfolio and a debtor view). The reports insights can enable lenders to adjust their risk strategy and loss prevention measures.
Regardless of market conditions, lien perfection is important to maintaining overall portfolio health. With new and greater risks from the current financial landscape, it is more important than ever for commercial lenders to take steps to reduce risk and protect the ability to collect in default situations.
Without perfected liens, a lender can lose its priority position to other creditors. This may lead to having to share or lose the proceeds from collateral sales in the event of default. Yet with the right solutions and services, lenders can remediate issues that impact their lien position and reduce portfolio risks.
