As a lending professional, it’s your job to ensure your company’s assets are protected with each loan it makes. As we’ve learned in Lien Management and Monitoring and Auto Continuation of this lien management primer series, that can be a real test. However, we’ve also discovered it doesn’t have to be difficult if you find the right partner that can provide automated solutions and guidance to overcome challenges.
Rather than thinking of it as a series of unrelated tasks to perform on a set schedule, we want to show how to view and conduct lien management from a holistic perspective. In the end, you’ll understand how taking such an approach is the surest route to ultimate lending success.
Reporting: Seeing the big picture
Stepping back and taking the long view of lien management offers the ability to see trends on the horizon and develop plans to take full advantage of them and profit before they arrive. This is in contrast to only learning of a trend when it’s too late to do anything but react in a defensive way to preserve rather than to advance and grow.
Here at Lien Solutions, we provide a way to get that global view of your process with reporting solutions that give snapshots of the big picture. The automated, self-service reports are customizable and flexible to meet your unique needs based on the specific timeframe you choose.
Key decision-makers and stakeholders can receive reports on a periodic, adjustable basis, or made “on the fly.”
Reporting allows users to identify trends in a timely fashion. This gives a lender and key stakeholders a chance to plan strategies to best take advantage of a trend (if a positive one) or to mitigate any problems before they occur (if a negative one). For example, a “Recent Filing” report can summarize your filing operations in a multitude of ways. It can give high level trends to very granular details of each parameter of the filings you have done. It helps you to understand the trends and take appropriate actions. It can also free you up by setting up specific templates and timeframes when these reports have to be generated and delivered.
Finally, reporting makes more efficient use of finite labor resources, cutting operational costs. Rather than having to devote already limited staff time to finding, organizing, and presenting data, the automated system does it for you on your schedule, at your convenience, letting you allocate staff to more pressing matters.
Lien analytics – Key insight into perfection risk
Studies of typical large lenders’ portfolios reveal that up to five percent of their UCC filings may have perfection issues, putting that lender at risk. Unfortunately, many lenders have no way to get actionable information on these filings. Or, if they have a way, it’s not cost-efficient. That means that information is essentially invisible to them and lurks as a constant risk to their portfolios.
Lenders want — and need — a way to gain additional insight into the current quality of their lien portfolios. They need a way to gain a better understanding of the size of the risks they face and to identify those liens that pose a danger so that proper action can be taken before a costly problem arises.
One example of such a risk is a debtor name mismatch. Your lien is filed using what you had thought was the debtor’s correct legal name, when, in fact, the name is in error. The name is spelled incorrectly. You are not aware of this; the error has slipped by your quality control or the name changed after the filing was done. Now, should the debtor someday face financial difficulty, your lien containing the error may be challenged in court and found to be unperfected.
The experience of LEAF Capital Funding (LEAF) is a great illustration of this. LEAF had made two loans to Ronald Markt Nay for the purchase of high-capacity dump trucks. As required, LEAF filed UCCs with the Secretary of State. However, LEAF made the filings using the debtor name of Ronald Mark Nay, leaving off the “t” in Markt. Although Nay’s correct middle name was spelled the proper way is on his driver’s license, it’s an all-too-easy mistake to make in a hurry, considering the uncommon name of Markt.
Another lender, MainSource Bank, also filed a financing statement on Ronald Markt Nay. MainSource used the proper spelling of Markt.
Nay and his wife filed for bankruptcy in Indiana. Indiana has adopted the 2010 Amendments to Article 9, so the name on the debtor’s most-recently issued, unexpired driver’s license is considered the debtor’s proper legal name. When LEAF’s twin liens for the dump trucks were challenged, the bankruptcy court found them to be unperfected due to the error in the spelling of Markt as Mark. The names on LEAF’s liens did not exactly match the one on Nay’s Indiana driver’s license. One single letter was enough for the judge to throw out the liens. LEAF subsequently lost their place in the line of secured creditors. MainSource, meanwhile, was found to have a perfected lien, as the debtor’s name on its filing matched the one on Nay’s license.
Because of this mismatch of a single letter, MainSource moved to the front of the secured creditor line and it was satisfied first when the debtor’s assets were divided. LEAF, now reduced to an unsecured creditor, must wait its turn, standing to recover potentially little, if anything, from its two earlier loans.
Understanding your portfolio, being aware of potential risks (like a debtor name mismatch), and proactively taking proper preventative action ahead of time are the key elements in a sound lien management program. Third-party partners can be a big help in this regard. Using a third-party lien analytics solution, a lender can look at its portfolio from a high level, as well as drill deep down to view each individual component of its process.
A lien analytics system offers powerful dashboards and Key Performance Indicators (KPIs) that give valuable insight into risk potential, portfolio quality, workflow efficiency, and operational effectiveness. Using these dashboards and KPIs, a lender can choose data sets based on its specific criteria of need and timeframe. The lien analytics system will then automatically generate data points at customized intervals — daily, weekly, monthly, etc. — without the lender having to do anything else. The lender and vendor can change these intervals or the data sets at any time to suit the lender's requirements, or let it run on schedule indefinitely.
With such a system in place, a lender gains more control over accuracy and risk, as well as a greater understanding of where potential problems may exist in its process from a quality standpoint. The lender also has the knowledge to solve these problems in a timely manner before they negatively impact its portfolio and the bottom line.
In addition, the lender makes much more efficient use of staff resources. Whereas such customized analytical reports could take hours or days to manually compile — taking staffers away from other duties — these valuable reports can be generated automatically, in seconds, without anyone being pulled from something else or lifting a finger.
Getting your lien management in sync
For any lender, there are times when outside, non-lending parties such as law firms will file a lien on your behalf. Not only do these firms not think about end-to-end lien management, these liens may be hard to find and track, and as a result, their impact on a lender’s loan portfolio can be overlooked or missed entirely. You have no doubt heard the old saying “out of sight, out of mind.” However, when implementing a lien management program, having something invisible is not something you want. It adds to uncertainty and heightens risk. Lenders have expressed a need to be able to make these “out of sight” liens more visible so that proper action — amendments, continuations, etc. — can be taken on a timely basis.
The good news is that there are Web-based solutions to assist here. One such solution is Portfolio Sync. This system synchronizes a lender’s portfolio with public record filings. Using this system, a lender now has all of their liens — ones filed directly by them as well as those filed on their behalf — in one place, so that all may be managed together, at the same time, from one centralized place. Nothing is left outside to potentially slip through the cracks, so to speak, and increase risk.
A lender using Portfolio Sync can get a complete picture of the entire portfolio. Portfolio Sync makes the items discussed earlier today and in the previous posts in this series — Monitoring, Auto Continuation, and Lien Analytics — even more effective. No lien due for continuation will slip past your quality control and be terminated, whether one filed by you or by your counsel, because the entire portfolio is now in one convenient place, under automated lien management control.
Bringing it all together
End-to-end lien management is a very detail-oriented process. And with anything requiring attention to detail, the chance for error slips in. Error increases risk. However, as we’ve discussed in this series, automated, Web-based systems provide a cost-effective, error-free means to reduce risk, increase accuracy, and enhance a lender’s lien management program.
Attention to detail also can be a labor-intensive task that draws needed resources away from other duties, reducing overall workflow efficiency. Automated, Web-based systems can take these essential tasks out of the hands of employees, freeing them to perform other things. Automated systems can accomplish a wide variety of necessary assignments quickly and efficiently, provide a wealth of key portfolio data either on the fly or on a pre-programmed schedule, and be fine-tuned as needed based on a lender’s unique requirements.
Automated, Web-based lien management empowers a lender to see an entire loan portfolio from many different angles — either from a high-level view, or up close on any one segment. This gives a complete, centralized picture of the process from start to finish, or any point in between. Such capabilities offer the lender the ability to see trends or problems well in advance and take appropriate action ahead of time rather than to simply react after the fact and hope for the best. Most of all, a lender has all the tools and knowledge at his or her fingertip to make informed decisions rather than guess or assume.
At the beginning of this article, we said we would take a new look at lien management. Rather than a bunch of unrelated tasks, we introduced the idea of seeing them as interconnected. Each task affects other parts of the procedure. Finally, we introduced the idea of a holistic approach to lien management — of seeing the entire process and understanding how each undertaking fits together. The three specific systems we discussed today — Reporting, Lien Analytics, and Portfolio Sync — offer a holistic way to manage a lien portfolio. Combined, they offer a means to improve accuracy, reduce risk, and increase workflow efficiency, which are the ultimate goals of any lien management program.
Lien Solutions recently presented a webinar titled “360° Lien Management for 100% Confidence: Harnessing the Power of Change." It’s now available here for on-demand viewing.