Interest rate hikes, rising inflation, and declining commercial real estate values are increasing commercial portfolio risk across today’s financial landscape. As a result, lenders are experiencing a rise in delinquent payments as building owners struggle with cash flow problems.
The collapse of multiple regional banks earlier this year has further exposed lenders to unprecedented risk. As they acquire substantial portfolios in extremely short timeframes, they often lack visibility into these assets.
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 steps a lender can take to remediate issues, manage portfolio risk, and maintain lien perfection:
1. File bulk amendments.
Most lenders lack the manpower and/or training necessary to complete ongoing Uniform Commercial Code (UCC) amendments in order to keep their liens perfected. It is challenging to stay on top of debtor changes, primarily 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.
Wolters Kluwer’s bulk amendment filing service improves productivity by streamlining UCC processes ― reducing errors and delays without having to stress existing resources. By ensuring that filings and updates are properly completed in a timely manner, lenders can better manage portfolio risk.
2. Ensure liens in your portfolio are perfected.
Another threat to lien perfection is an unreliable view of the loan portfolio, which 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.
Wolters Kluwer’s Professional Services team can help lenders with portfolio cleanup by identifying and importing missing UCC filings, removing duplicates, correcting entity information, and properly categorizing individuals and businesses. This helps commercial lenders improve their data quality and enables them to focus on core business priorities.
The service can be useful to lenders who are managing large and/or rushed portfolio acquisitions, such as those following the recent bank collapses. When these portfolios are acquired, it’s essential to not only update the liens to reflect the new owner, but also to perform a data scrub on the acquired assets to keep the entire portfolio perfected.
3. Lien data import and portfolio consolidation.
Another necessary 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 Wolters Kluwer’s Professional Services to import all their lien data into a consolidated portfolio. This reduces the risk of unperfected liens and 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.
Regardless of market conditions, lien perfection is essential 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.
With perfected liens, a lender can retain its priority position to other creditors. This may lead to sharing or losing 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.
