With apologies to death and taxes, change is the only true constant in the universe. Change affects everything — from the course of a mighty river to the height of a towering mountain, and more importantly to this discussion, your portfolio of liens.
Some of these changes can be quite large, while others can appear almost imperceptible. No matter their size, in order to protect your company and its assets you need to be aware of these changes and how best to deal with them.
Obviously you are issuing new loans and adding liens to your portfolio and subtracting those paid off on a daily basis. But even those liens still outstanding are subject to change, and these changes can have a big impact on your business if you don’t keep up with them and make the proper adjustments in a timely manner.
As a lender, you file UCCs to announce a lien has been created to protect your assets. You may think the process ends once a lien is filed. It doesn’t. Rather it’s merely the beginning of an ongoing effort that continues throughout the life of the loan. Why? Things change. Your lien is in constant change, just like the universe around you.
UCCs are not static
What does that mean “your lien is in constant change?” UCCs are not static things; they are dynamic.
For example, the borrower or lessee may have moved after you issued the loan or extended a lease. That affects your UCC. Or the business may have changed names, merged, or lost its good standing, or an individual may have gotten married and assumed a new last name as part of new a relationship.
It could also mean that the UCC has expired, as they have a limited shelf life of five years. Also, a third-party may have terminated your UCC without your knowledge.
Should your UCC change and you have not kept up with those changes, you could place your loan, lease, or assets in jeopardy. Should the business or person you made the loan or lease to encounter financial difficulty and declare bankruptcy, having an out-of-date or incorrect (also known as unperfected) UCC or lien could mean that you would lose your place in line among secured creditors. You would have to settle for whatever is left after all secured creditors have been made whole. That means you may only get back pennies on the dollar, or worse, nothing at all.
That certainly sounds like an ominous and unappealing scenario.
Change equals risk
Ultimately then, change equals risk. However, there are ways to mitigate, or lessen, that risk and keep up to date with all the UCC changes taking place within your portfolio. Staying current on those changes and making necessary alterations to your UCCs as soon as possible protects your assets and ensures your place in line among secured creditors.
Lien perfection (the process of keeping your UCC portfolio current and up to date) requires vigilance and effort. However, this vigilance and effort can be automated to fit seamlessly into your normal workflow and not disrupt your daily operations.
A monitoring and alert system is one key component to any automated lien perfection program. This system lets you know whenever there has been a change by one of debtor’s or lessees that affects any of your liens. For example, if a business changes its name or location. Why is this important? If you do not have the debtor’s correct legal name or address, your UCC can be considered unperfected. That means it can be challenged in court as misleading or invalid and dismissed. Lenders that have suffered this fate have seen their assets lost, some to the point where they themselves went out of business as a result.
An automated lien perfection system can also keep you up to date on when your UCCs are about to expire so that you can file continuations to protect your assets throughout the remaining life of the loan. You can be alerted when third-parties terminate your liens. Again, this mitigates your risk and protects your assets.
Finally, an automated lien perfection system can track your recently filed UCCs and provide confirmation of their current status so that you know when they are completed and in effect.
Learn more about monitoring your liens by downloading our white paper on Monitoring, >Beyond Perfection: Mitigating Risk with Ongoing Lien Monitoring.