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For thousands upon thousands of asset-based loans across Farm Credit, ensuring and maintaining proper collateralization is a critical yet overwhelming risk management undertaking. Wolters Kluwer, an FCCS Passkey Partner offers a new Portfolio Risk Assessment (PRA) tool that quickly identifies specific loans where the lender is not fully secured.
Wolters Kluwer Lien Solutions has been helping clients protect their collateral portfolios for years. PRA takes this risk management a step further by comparing clients’ Uniform Commercial Code (UCC) lien records to a variety of official public data sources such as jurisdiction corporate charters and millions of other UCC records that are associated with the lender’s portfolio, identifying gaps that could lead to any of a multitude of risk factors – many seemingly innocuous – that can nullify the value and protection of the lien.
“Having the UCC lien filed properly is essential to the lender being protected, but just because you filed doesn’t mean you’ll continue to be protected,” says Shunhuan Morris, director of product management for Wolters Kluwer. “Changes happen during the term that can decrease or even eliminate the claim on the collateral.”
Lien management is an ongoing process: 16% of liens have a change each year, and 20% contain a critical error that could invalidate any claim to the collateral asset. A seemingly minor inaccuracy can eliminate lien protection and require refiling the UCC, in each case facing competition from other lien holders to be the first to file.
Some of the risks PRA identifies include:
• Inaccurate business name, through error or because the borrower has changed it
• Inaccurate filing location, such as using a branch office rather than official
• Expiration – 32% of liens expire annually
• Accidental termination due to clerical error
• Secondary positions to target for refiling to secure priority – 25% of lenders do not get first in line to collect
Manual, ongoing tracking of each lien would be an overwhelming task; PRA automates the tracking process, turning around powerful, actionable insights on demand or on a client-determined schedule. For example, the “Lien Insight report” identifies liens that are not in the first position. Organization can request such reports annually, quarterly or monthly on a subscription basis, or request a one-time report with no further obligation. Another example is debtor name error tracking report which identifies imperfect filings, and is available on demand.
One critical time to carefully assess portfolio risk is during a merger or other
consolidation, when accuracy and transparency are paramount.
“With liens, so much changes behind the scenes so you don’t know what you
don’t know,” says Shunhuan. “PRA’s insights are especially powerful for identifying and managing portfolio risk when two portfolios are being integrated in a limited timeframe with limited resources.”
For more information on Wolters Kluwer Lien Solutions, including search and filing solutions, and the Portfolio Risk Assessment, email Farm Credit National Account Executive Mary Beth Sommer.
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