Page 10 - Summer 2024 - 2.pub

WHAT IS A PERFECTED LIEN?

BY BRENT MELTON

see many mistakes in this area.
DEFINITION OF A PERFECTED LIEN: a binding document
Language can be altered from the
that has been filed with the appropriate agency allowing for a legal survey to the legal descrip on,
claim to seize assets if a payor defaults. Commonly, a perfected lien is causing the legal to be incorrect.
enacted for the purpose of legally securing collateral for a creditor in a Human error.
secured loan.
Real estate loans are generally the
FDIC states in its regulaƟons:
largest investment by the bank.
Depth of Reviews With this in mind, would we not
want to make sure that the
Loan reviews should analyze a number of important factors, including: collateral protec ng our lien is
 Credit Quality correct? If it is not, we can incur
 Sufficiency of credit and collateral documents, considerable expense correc ng,
 Proper lien perfection, and poten ally lose value with it
 Proper loan approval, being on the market so long. In
 Adherence to loan covenants, addi on, the property is poten ally Brent Melton is CEO and co-
 Compliance with internal loan policies, procedures and exposed to vandalism and results in founder of Vizaline, LLC, a
unnecessary frustra on for
applicable laws and regulations, everyone. Fortunately, this is one company specializing in
converting property
 The accuracy and timeliness of credit grades assigned by risk at can easily be eliminated at descriptions into pictures.
loan officers. no cost to the bank and a very small
Vizaline is an ACB Associate
WE DON’T KNOW WHAT WE DON’T KNOW! cost to the customer. Member. You may connect
with Brent at
How do we know if our lien is perfected? There are two ways to know As Community Bankers we should
when combined with a tle search: also consider the customer. If they brent@vizaline.com.
1) A survey, or pay their loan off or it goes into an estate, they con nue to have the
2) An inexpensive and quality audit of the legal descrip on by problem of resolving the legal mistakes at a later date that can cost
qualified professionals that understand surveys, legal descrip ons them considerably. It could have all been solved at loan closing for no
and geography. addi onal cost. Who do they blame?

It has been confirmed that 15-20% of a bank’s metes and bounds
TITLE INSURANCE
descrip ons contain language that causes the legal to be incorrect. The
Some may say that I have tle insurance. Title insurance is very
errors found within these descrip ons can be very expensive for the
valuable to the bank, however, it does not protect the legal descrip on,
bank and the customer to correct in the future. Calculate the value of
amount of acreage, ingress and egress easements, land locked
your bank’s por olio, then apply the 15-20 % error rate to determine
proper es and frustra on. An extra document (survey or audit) is
your risks. Are these risks that you are willing to accept and are you in
necessary to fully assure that the collateral lien is perfected.
compliance with federal regula ons?
TRUE STORY
What are some common mistakes found in audits of metes and An investor bought a house and relied on the address being consistent
bounds legal descripƟons: with the legal descrip on. It turns out that house he bought was not at
 Different acreage than was proposed causing the loan amount and the referenced address and was not located on the property described
LTV to be incorrect and in viola on of the bank’s loan policy, in the legal descrip on. The house he intended to buy was on a third
 Property you are taking a lien on that is in a different geographic adjacent parcel. This investor could have avoided his problems, which
loca on than you thought, are not covered by tle insurance, by having an audit that results in a
 Calls within the descrip on that cause the polygon to not close visual representa on of the property descrip on. This would allow the
properly, customer to have a confirmed visualiza on of what he intended to
 Property overlapping or improvements being cut in half or located purchase.
elsewhere, We are providing this informa on to assist banks in becoming more
 Less and Excepts that have removed valuable property from the aware of the unforeseen circumstances that can and do occur in legal
descrip on. descrip ons every day. These errors will affect the banks ability to
 The ingress/egress easement is not correct? foreclose if necessary in a mely manner and a make or break point
with the banks customers. We will be happy to discuss in detail more
Who is checking your legal descrip on to determine if they are correct? informa on or show you examples of the thousands of mistakes that
In most cases no one is checking them. They go thru the en re loan we have found in banks throughout the South.
process without an established procedure to be checked. Loan officers,
loan assistants and loan review are not prepared for this type Thank you for allowing us to share this important informa on with you
examina on. and I hope it was beneficial.

If you have a survey, who is checking the legal descrip on to the survey
to see if they agree. Again, we suggest that this is not being done. We

A COMMUNITY BANKER | 10 | Summer 2024
RKANSAS