Proper lien management of your loan portfolio doesn’t have to be an onerous chore. In fact, employing proper lien management practices offers the lender many risk management and workflow efficiency benefits at each step of the loan lifecycle.
In the first part of this series, we discussed the basics of the UCC, the need for lien perfection and the core concepts of lien management. Today in part two, we’ll drill down deeper into two of the major components of sound lien management and show how they can help a lender mitigate risks, improve accuracy, and increase productivity.
As we have shown, approving and extending the loan to a client is not the end of the lien process. It is merely the beginning of a cycle that will continue until the loan is repaid, whether that repayment is next month or several years down the road. Once filed, the UCC on that outstanding lien shouldn’t just be tucked away and forgotten. A UCC filing is a dynamic document subject to all manner of changes at any point during the loan lifecycle.
These changes could range from something as simple as a debtor name or address change to something much more complex. As the lienholder it is incumbent upon you to stay up-to-date with these changes to your debtor’s status and maintain the accuracy of your filing. Failure to do so, as revealed in part one, could render your filing as unperfected and jeopardize your standing as a secured creditor.
As a successful lender, you no doubt have a sizable portfolio of outstanding loans and liens spanning a wide array of customers — both individuals and businesses. What you may not have are the staff, time, and other resources needed to manage this portfolio and maintain its accuracy on a day-to-day basis, in addition to performing all the other tasks and routines associated with your business. You’re looking for ideas, help, and solutions. These exist, as we’ll examine below.
Portfolio monitoring
A UCC filing is not static, of course, just as your customers are not static. Each day a myriad of events occur that can alter not only their lives but your UCC filing as well. These changes can be as simple as a client moving from one home or location to another, a customer getting married and changing her last name, or a business adopting a new moniker. Or they can be more complex, such as a client taking on new debt or collateral, a business merger, the firm dissolving, and even to the business falling out of good standing. One very notable and noticeable change is another party terminating your filing, which is a common occurrence that can wreak havoc with your portfolio if not caught.
If you think that such changes are few and far between, think again. After examining its portfolio, one large client of Lien Solutions found that up to 6 percent of its portfolio consisted of debtors that were either now inactive, dissolved, merged, withdrawn, or were non-compliant entities with the Secretary of State’s office. That added quite a bit of risk and unwelcome uncertainty to the lender’s portfolio as each of these liens was now subject to being deemed unperfected, potentially exposing them to loss of secured creditor status should one of those debtors file for bankruptcy.
At Lien Solutions, we offer automated solutions that enable lenders and lienholders to receive timely alerts on any changes to the status of their UCC filings or their borrowers. To give you an example we ran some numbers for a recent six-month period. Our automated monitoring solution generated more than 386,000 alerts in that period alone. Drilling down further, 18,000 of these dealt with a business name change, usually one of the simpler perfection tasks. More than 4,000 of these alerts dealt with critical perfection issues that put the lienholder at risk of being unperfected. Remember, while major discrepancies clearly jeopardize a filing’s status, even small errors can be enough to have a lender’s secured creditor standing revoked.
The risks of not keeping up with changes are clearly identifiable and measurable. Happily, so too are the benefits of using an automated monitoring system. Lenders using such a system receive regular alerts each tied to a change detected in one of their filings. This gives the lender ample warning and time to make the needed corrections. Filing accuracy is improved and risks are mitigated. Furthermore, an automated monitoring and alert system takes away a major lienholder pain point — resource allocation. Having an automated system frees a lender’s staff from having to perform this task manually, letting them focus on other mission-critical duties and boosting workflow efficiency.
Auto Continuation
It’s been said that all good things come to an end. That includes UCC filings. A UCC filing has an expiration date (five years from the date of filing). The good news is that a UCC filing’s shelf life can be extended — if the lienholder takes proper action in time. Failure to file a timely extension (continuation) results in the UCC’s termination, which means the lienholder is no longer protected.
As mentioned in the introduction, as a successful lender, you no doubt have a sizable portfolio of outstanding liens. Manually monitoring them for any changes is a difficult enough task. Ensuring that you are aware of pending filing expirations beforehand so that you can take timely action is another time-consuming, labor-intensive chore. Letting a filing lapse into termination revokes the secured lender protection and increases risk.
Lien Solutions has found most lenders generally dedicate one employee to the task of ensuring UCC continuation. As the employee gains experience over the years, the lender can gain a false sense of trust that can quickly erode once that key employee leaves for whatever reason. Now someone new is manually poring over filing records. This creates an opening for error — error that could lead to a missed continuation and result in the loss of perfection and secured creditor status.
As with monitoring, another automated solution Lien Solutions offers is one that can help prevent a filing from being accidentally allowed to lapse. Our Auto Continuation service continuously scans a lienholder’s filings, providing timely alerts on upcoming expirations and automatically files continuations on the lender’s behalf and alerts the lender about any up-for-renewal filings requiring manual attention. This improves accuracy and reduces risk, giving the lienholder valuable peace of mind knowing no filing will inadvertently “fall through the cracks” of a manual system and lapse. Workflow efficiency is also boosted as staff and hours once devoted to continuations can now be used in other key areas of need.
Managing risk in a lien portfolio is an ongoing (and never-ending) task, but it is possible to utilize unique tool-sets to help with the work. If enough labor and mental energy can be saved with things like Monitoring and Auto Continuation, you’re free to look at ways to increase the long-term health of your portfolio and grow your business.