Fix your Risky Underwriting Habits

Any commercial lender must be aware that underwriting can be risky if not correctly done. The interpretations of written agreement terms, after-acquired interests, and state law ought to be understood. Understanding the 45-day rule can be of substantial help.

What is underwriting?

It is a process where an insurer assesses the risks involved to determine the rates. The process might be complicated, time-consuming, and strenuous, thus requiring time to evaluate and grant a policy. It would help if you were truthful and accurate about any details you provide.

The 45-day rule-what is it?

It is a process that prioritizes grant lenders over central tax lien. It is an applicable rule from the day of filing about commercial lending that allows an underwriter to determine the risk rates. It is best captured in IRC sections 6323 (c) and (d), prioritizing grant lenders over federal tax and is applicable from the time of purchase or when the loan was made within 45 days.

What you must know about the 45-day rule

It might be a complex topic to understand, hence the need for a tax expert’s input. The most applicable rule about secured interests in any property is ‘first in time, first in the right.’ The first party to apply for the rights of the taxpayer’s property is given a priority.

The 45-day rule is applicable in exceptional priority, mainly in revolving assets, such as inventory. This rule should be clearly understood as it is only referred to when handling revolving assets. The lender can only be superior if he or she works within the 45 days as any input after the day’s elapse results to one becoming a subordinate.

If you fund after 45 days, you risk losing collateral through a suite of conversion of assets or IRS levy. However, upon filing and submitting a federal tax lien, a lender’s guarantee can be identified, and he can receive priority. For this to happen, several factors are critical, including the security agreement appearing before the federal tax lien filing, the lender releasing disbursements within the 45 days, the collateral receiving the payments within the 45 days, and the lender not being notified of the federal tax lien during the disbursement process.

Have lending questions? Speak to an expert for more information.