The 2 Most Common Mistakes Made By Secured Party Creditors

As a secured party creditor, it is important to know the procedures involved in perfecting liens for different types of security

. While real estate is one type of secured debt, many secured party creditors deal with secured consumer loans. The two most common ways these loans are secured are by personal property or an auto title. Making sure the liens on these items are properly perfected will be the difference in truly securing the loan and actually having a loan of an unsecured nature.

There have been times when, due to either lack of training or lack of knowledge, those in charge of closing the loan have thought they had done everything right, until the time comes when they need to consider picking up their security. The customer file gets pulled to start getting the proper paperwork prepared to go after the security due to lack of payments on the loan, when all of a sudden it is realized the lien was never in place. This can lead to problems such as a delay in the time the creditor can take action to not being secured at all.

When a loan is secured by personal property, a UCC-1 form is filled out by the consumer listing all personal property that they are using as security for the loan. The important thing to remember, however, is that this form must be filed with the secretary of state or the county clerk's office. Merely filling it out properly and placing it in the file means nothing. This is a common mistake that is made by many inexperienced employees that could be costly down the road. While getting the lien filed properly can be done later on, it will slow up the collection process until the lien has been perfected properly. In the event the debtor files for bankruptcy prior to the proper action being taken, the loan will be considered unsecured and will likely have to be written off.

In the case where a car title is used as collateral, the title along with a financing statement must be mailed to the local DMV to have the lien perfected. This is another common mistake that occurs with new employees. Many believe that merely holding the car title in the file is enough to secure the loan. However, without a perfected lien there is no way to legally repossess the vehicle. In the event the customer files bankruptcy, if their lawyer finds that the lien has not been perfected, it could be possible that the secured party creditor will have to return the title to the debtors and deal with having an unsecured loan that is not going to be paid.

These mistakes show the importance of perfecting liens and making sure employees are trained properly. Not supplying the proper training can be a crucial error for any secured party creditor.

by: Christine Harrell

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