As a lender, deals come across your desk often and all of them require risk evaluation, but where do you find answers to determine the level of liability of this new loan?
When a five-point due diligence search is added into the pre-funding strategy, the financial status of a prospective debtor reveals a clearer picture, lessening the unknowns.
At Capitol Lien, our Full Adverse Lien Search Package is one of our most requested service packages. It encompasses numerous lien searches across multiple jurisdictions, providing the critical information necessary to make a funding determination quickly.
Here is what is included and highly recommended to mitigate risk:
1. State-Level UCC and Tax Lien* Search (*where applicable)
This search identifies if another creditor or government agency already has claim to the collateral or funds that you as the lender may be considering for your loan.
2. County Search for Fixture Filings, Federal and State Tax Liens and Judgments
By conducting the fixture filing portion any existing claims against personal property attached to real estate would be revealed. Tax liens and judgments are critical and these can be filed in various locations. It’s important to check all potential places a lien could be recorded.
3. Litigation Search at Courts of General Jurisdiction
Any cases against your debtor uncovered in a litigation search would be a red flag. Pending civil suits or unsatisfied court judgments can help you determine if an individual or business qualifies for a loan with your company, or if the risk is too great. Our job is to know where to search and what to look for to protect our client’s best interest.
4. Litigation Search at U.S. District Court
This search at the U.S. District Court shows if there are any pending civil suits or unsatisfied judgments against your debtor at the Federal level. Many do not think to search at all possible levels and this is just another location many of our clients request of us.
5. Bankruptcy Search at U.S. Bankruptcy Court
If bankruptcy protection was ever filed for by your prospect it would be revealed in our 10-year bankruptcy search. This could mean they already have a financial history that shows instability and may reveal the debtor is a higher liability than is preferred based on the terms of the loan.
Risk Mitigation
As mentioned earlier, mitigating future risk is the name of the game. Each lender will have different thresholds depending on what is on the line and what they stand to potentially gain. After the services above are completed and we uncover potential financial problems, those results are provided back to the credit team, we help eliminate the unknown. The lender will have a much better sense of whether or not to fund the deal based on the prospect’s ability to pay the debt. They will also understand other obligations the debtor already has out there that could get in the way of transactional success.
If the Full Adverse Lien Search Package is more comprehensive than you believe is required for your deal, we offer a simpler version known as our Basic Adverse Lien Search Package. This research service includes UCCs, Tax Liens, and Judgment searches at all available locations on the debtor names you provide.
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