Today’s rapidly changing, unstable financial landscape creates new and greater risks for commercial lenders. Delinquent payments are on the rise due to interest rate hikes, rising inflation, and decreasing commercial real estate values.
As building owners struggle with cash flow shortfalls and staffing shortages, they are increasingly delaying loan payments, exposing lenders to greater commercial portfolio risk.
The collapse of multiple regional banks earlier this year is making secure asset management more challenging. Larger banks acquire substantial portfolios in extremely short timeframes, so they lack visibility into the assets they are gaining.
Lien perfection is the process of ensuring that a lien is properly recorded, maintained, and legally enforceable. When this process is followed, lenders can protect their claim on the title of a secure asset.
Yet lien perfection is complicated and labor-intensive. If the process isn’t completed properly, it threatens a lender’s ability to collect. However, with the proper tools to diagnose, remediate, and prevent unperfected liens, lenders can better protect their position.
Early diagnostics play a crucial role in helping lenders to reduce risk and achieve lien perfection through the ability to:
1. Understand your position with every debtor
When it comes to maintaining lien perfection, what you don’t know can hurt you.
Lenders must spend much time and effort on due diligence during loan origination, as a financial institution wants to ensure its position over other creditors. But a lender also must maintain that protection throughout the loan's lifecycle.
Being aware of the changes that can impact a lien position isn’t easy. Most lenders do not have the resources to complete manual searches on every debtor to ensure their lien position.
In addition, domain expertise is required to understand the details of how Uniform Commercial Codes (UCCs) must be filed to avoid errors and costly mistakes.
Wolters Kluwer’s Lien Insights Report offers lenders a convenient alternative to completing research one debtor at a time. By accessing lien data across public records, the report provides information on lien position and lien activity against debtors. This approach not only cuts manual search and review time, but reduces risk by confirming whether a lender is first in line to collect the collateral asset.
2. Identify potential issues in your portfolio
Understanding the threats within a portfolio is the first step to reducing risk. Only when a lender can pinpoint which loans are unperfected, there is a way to resolve them. The Lien Analytics dashboard makes it easy to see any lien that includes incomplete or incorrect data, such as debtor name changes.
This capability is very important when financial organizations rush to purchase large volumes of loans, such as in the case of market opportunities like the recent collapse of several banks. Because these processes happen very quickly, many lenders don’t know if the liens are perfected, further increasing risk.
Lien Analytics enables lenders to isolate potential concerns, know immediately how many liens are unperfected, and respond proactively to correct them to improve their portfolio health.
3. Seamlessly manage UCC expirations
Managing ongoing UCC amendments and continuations is another challenge for lenders, as UCC filings expire after just five years. Lenders must file multiple continuations throughout the lifespan of a loan for the lien to remain active.
Our Pending Expiration alerts help reduce the risk of lenders losing their priority position due to missed UCC continuation filings. This provides visibility to liens set to expire within a set timeframe ― reducing time and staffing requirements while helping to mitigate undesirable lien lapse risk.
Ensuring liens are perfected is critical to overall portfolio health, reducing risk and promoting recovery efforts in default situations. Otherwise, a lender can lose its priority position to other creditors and may be forced to share or lose the proceeds from collateral sales in the event of default.
With the right solutions, lenders can gain visibility into lien positions and protect against unexpected portfolio risks.
