Featured Articles
By Kacy Flowers, UCC & Corporate Communication Specialist, First Corporate Solutions
Appeared in Illinois Bankers Magazine June 2010
A growing number of state filing offices provide a UCC search database at low to no cost on their website. In an effort to keep due diligence costs to a minimum, many lenders are turning to these state direct online databases to fulfill their pre-funding UCC search requirements.
While a good fit for some lenders, others have found out the hard way that state direct online searching is not always the right choice. Deciding which data sources to trust is the first step in securing high quality, dependable search results. This decision requires careful consideration of a variety factors. The following is a list of questions to help you evaluate if a state direct search site is the right choice for your firm:
1. What lien types are available on the index?
Numerous states maintain tax lien and/or judgment lien records in addition to UCC information. However, a state may or may not make these lien types available to the public through their online UCC database. Some states even require a second search of a separate index to locate involuntary liens. A fragmented index makes it easy to miss critical liens when performing searches.
2. Does the state direct database provide an index date?
Many states that offer an online UCC index do not publish their index date (aka through date) on the website to inform searchers of how current their data is. Searchers need to be interacting with the most accurate and up-to-date lien information in order to make funding decisions with confidence. Outdated lien information impedes a searcher’s ability to determine current filing status, accurate party names and priority of claims.
3. Are document images available online?
While a search report can deliver several significant pieces of information such as file dates and filing numbers, party names and addresses, and in some cases even collateral type, it is usually necessary to view an image of the filed document to see what a given financing statement specifically secures.
A database that does not offer online images is providing only a piece of the puzzle. It is likely that the searcher will need to obtain copies of documents from a secondary source, which will usually incur charges. This extra step often translates into increased cycle time and decreased efficiency in your workplace.
4. What is the Search Logic?
It is essential for searchers to have an in depth understanding of the type of search logic a search system employs. On many state websites though, this information is hard to locate and even more difficult to follow.
Does the state site allow for the entry of truncated search strings? Does it offer a wildcard character to broaden the scope of your search result? Will the system report on similar names? Broad-based search features such as these are powerful tools for searchers as they help reveal name variations and uncover filings that have been indexed incorrectly at the filing office.
5. Who will be performing UCC searches on behalf of your organization?
Effective lien searching requires specialized knowledge and a good deal of experience. If you are fortunate enough to have a skilled veteran searcher on staff, what happens if that employee leaves your organization? Has he or she left behind clear and comprehensive instructions and documented procedures for a successor? If not, providing your new employee with adequate training could be a time consuming, potentially expensive task.
The questions posed herein offer a simple method for evaluating search option to determine their utility based on your specific needs. If you decide that state direct online searching is not right for you, consider using a proprietary search system to streamline your due diligence process. Privately maintained and operated, these systems offer consistent search logic, easy-to-read results and a support staff to provide training and ongoing support.
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By David Silverburg, CEO/President, First Corporate Solutions
Appeared in Illinois Bankers Magazine
If you’ve ever loaned a few dollars to an in-law, friend or teenage child, only
to find out that reimbursing you was anything but that person’s top priority, you
already understand the major challenge faced by professional lenders: securing a
position for payback.
Banks and other commercial lenders lend money in the hope of not only recouping
their investments but also, quite naturally, of realizing a profit. Many of these
professionals tend to assume that, based upon the amount of money they’re lending
and the research they’ve done on the borrower, they’ll be high on the to-do list
for repayment.
But sometimes, particularly in a tight economy, when interest rate hikes aren’t
predictable, promissory notes can be deceptive. Even when lenders feel they’ve done
all the due diligence imaginable to calculate their risks, they sometimes come up
short by doing incomplete searches of a borrower’s fiscal history.
Put simply, today is no time to under do your due diligence. Here are a few suggestions
— which you’re free to consider as a report from the front lines of the back office
— that lenders may want to consider and borrowers ought to be aware of:
1. Before you lend money, do you conduct not only a certified search but also an
uncertified one? While the first type sounds more complete and the second may sound
vaguely illegitimate, it’s the uncertified search that can sometimes make red flags
pop up because it digs down deeper and seeks a much broader range of information.
The best thing to do might be to start with the uncertified search to expand the
boundaries of your quest, and then follow that with a certified search, to establish
the necessary paperwork if required. The type of searches you should consider include
but are not limited to state and federal tax liens, UCCs, pending suits, judgments
and bankruptcy searches.
2. Remember that sometimes federal and state tax liens and judgments against your
borrower might not be available from the state index you expect! For example, in
Illinois they are located in their own, separate state index. Did you know only
seven states include both federal tax liens for individuals and organizations at
the state level? Lenders might assume they’re receiving four kinds of data from
their search firm — documentation related to the Uniform Commercial Code, federal
tax liens, state tax liens and abstracts (legal summaries) of judgments against
the borrower — but, in fact, that depends upon the state in question and the sort
of data that state maintains in its filing office.
3. Do a broad enough search to make sure even though you’re in first position to
be repaid, your friends at the Internal Revenue Service can’t leapfrog your claim.
The IRS files against the taxpayer’s name and slight differences that may seem insignificant
prevent liens from being found, such as omitting punctuation or a space. Some search
engines allow broad based, truncated name searching: by inputting less you get more.
The capability to use wild cards is also recommended so you can retrieve different
spellings of the same name, for example Peterson and Petersen.
4. Make sure you’re looking at the articles of incorporation to ensure you are searching
the correct name for UCC filings! If the filing was filed with an incorrect name
or spelling, it is not perfected.
5. Monitor index dates or qualify your service provider so you know exactly how
current the information is. Some service providers strictly offer or use on-line
search systems. Depending on the jurisdiction, this may not be the most current
index through date, nor the best practice in obtaining up to date information. You
might consider using a vendor that uses a blend of both online and manual searching
that ensures you are getting the most up to date information in each jurisdiction.
6. Consider a comprehensive account monitoring program that searches at the state
and county level for federal tax liens on a monthly basis.
There are many choices out there with varying costs in accomplishing your due diligence.
Use a service that understands your business, your needs and who is committed to
finding the best solutions for you that minimize your risks.
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By Kacy Flowers
Appeared in Illinois Bankers Magazine April 2009
Can you hear it? It is the sound of millions of Americans simultaneously tightening
their belts. Across the nation, people are critically evaluating their spending
practices and making dramatic cuts in their household budgets. Given the uncertainty
of today’s economy, American families are wise to slash their spending. The legal
community however, should be cautious where they make cuts and think twice before
cutting too deeply from their due diligence budgets. Knowing the who, where and
what of due diligence searching can ensure you are getting the most value for your
due diligence dollar.
The Who
Searching for the right party is imperative when coordinating due diligence search
efforts. This may seem simple, but keep in mind that liens could be filed under
business names, individual names, aliases or nicknames, even fictitious business
names. So, how can you be sure you are searching for the right name?
Here are a few pointers to get you on the right track:
- Check corporate records to determine the exact legal name before performing liens
searches on a business.
- Utilize online search systems that allow for broad-based name searching to reveal
name variations.
- Be mindful of jurisdictions where exact name or Revised Article 9 search logic is
employed. Searches performed in these jurisdictions will not include any similar
names on your search result.
The Where
Equally important as searching for the right name is searching the right place.
In order to be certain you’re getting the results you think you are; searches must
be performed for the right records at the appropriate filing office.
Here are some tips to help determine where to search:
- Revised Article 9 sets forth that UCC Financing Statements filed against businesses
are to be filed in the state of organization. UCCs filed against individuals must
be filed in their state of residence.
- To uncover liens relating to collateral that is affixed to real property, be sure
to search for fixture filings at the county level. Fixtures are to be filed in the
county where the collateral is located.
- In many jurisdictions, tax liens can be filed with either the state or the county.
An exhaustive tax lien search in these jurisdictions will include a search of both
state and county filing offices.
- Tax lien records are often maintained on a separate index at state filing offices.
A UCC only search in these states will not reveal tax liens of record.
The What
It is advisable that you carefully consider what searches to perform to best mitigate
your clients’ risk for loss. That being said, the following due diligence search
package provides for comprehensive reporting of existing financial obligations and
encumbrances in the public record:
- UCCs (and available tax liens or judgments) at the state level
- UCCs/fixture filings, tax liens and judgments at the county level
- Civil litigation at the state court of general jurisdiction
- Civil litigation at the U.S. District Court
- Bankruptcy at the U.S. Bankruptcy Court
Thorough due diligence searching can help lenders make funding decisions with confidence.
There are several innovative portfolio management tools available to preserve that
peace of mind. A UCC tracking program will identify filings are set to expire so
you can prepare timely continuations and maintain priority position. Further, monthly
account monitoring programs will alert you to federal tax liens and other critical
filings that may jeopardize your ability to collect on debts.
In tough economic times, getting the most for your money is crucial. By familiarizing
yourself with the who, where and what of public records research you can rest assured
your money has been wisely spent.
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