The second in our series focusing on Servicing. We’re taking a close look at those
not-so-little details that can make all the difference. When they’re missed!
“If you place the emphasis on getting little things right, and address the everyday problems that can come up, you can encourage a culture of attending to detail.”
─ Richard Branson
Everybody loves a mystery. And there are plenty of them in Portfolio Servicing. Many start the same way: Your servicing person diligently follows up with the borrower to get their updated Acord form, receives it, checks it, and updates the tickler system with the new expiration date for the loan. After all that, it turns out there’s a problem, What’s missing? A Mystery indeed. Read on …
Case of the Stubborn OC. After seeking advice, Barry Borrower created a new Operating Company with a new name that better reflected the business. Then he transferred/sold the original OC’s assets to the new OC. Because Benny formed a new entity and didn’t modify the name of the original OC, the guaranty signed at closing was no longer enforceable. If it were your CDC, what would you do? Request the new company to execute a new guaranty, of course. In this case, they refused.
Consequences? Things won’t go well if the loan goes into liquation. SBA might be unable to recover any assets of the OC, and the loan would be in technical default.
Lesson learned. All information on the Acord form must match the Authorization. Just receiving the Acord form isn’t enough. Your CDC should develop an Acord Review Checklist. And use it.
Case of the Missing Endorsements. Bonnie Borrower changed insurance carriers to get a better rate. If this were your CDC? Since this was a new policy, you’d obtain copies of the applicable endorsements, as required. In this case, the policy didn’t contain the correct endorsements. When the real estate collateral sustained damages, the insurance funds went directly to the Eligible Passive Company. The EPC didn’t use them to make the required repairs, resulting in a material decrease in the project collateral.
Consequences? SBA might consider this a “harm issue.” If there’s a loss, the SBA might look to the CDC to compensate the Agency.
Lesson learned. Your Acord Review Checklist must include verification of the policy number and carrier to determine whether this is a new policy.
Case of the Costly Trip and Fall. Store owner Greg Grocer learned that a new insurance agent was assigned to his account. When the renewal was prepared, the EPC, not the OC, was listed on both the Hazard and Liability policies. A customer fell at the store, was injured and sued for damages. The carrier denied the OC’s claim, stating that the OC wasn’t covered by the policy. With the OC’s appeal pending, they incurred legal expenses and paid the customer.
Naturally, this had a material negative impact on the OC’s cashflow and ability to keep their 504 loan current. This may not be a “harm issue,” but the CDC’s failure to notice the change had a negative impact on Greg’s business.
Consequences? Not looking good for anybody. The OC claimed the agent was in error. And the borrower might say the CDC’s error caused the loss.
Lesson learned. Make sure your Acord Review Checklist includes verification that the entity listed in each policy is the correct party covered.
Cases closed! We hope we all agree that Servicing should be management’s high priority. We’re here to assist. Contact JRB.