Computer Crunch in Capital Delays Loan Processing Statewide

Times Staff Writer

The owner of a Burger King franchise in Monterey Park needs to refinance a business loan secured by the equipment at his fast-food outlet.

It's a routine transaction, the kind that comes up daily in the course of business banking. But there's a big snag.

Before United American Bank in Westminster can approve the loan, it must make sure that there are no other liens on the equipment. But the bank's effort to check on prior liens has been stymied in Sacramento, said Horton Sherwood, president of United American.

The loan is just one of thousands that have been held up recently because of a snafu at the California secretary of state's office, where documents involving loans on personal property are filed.

The office acknowledges that its workers are more than two months behind in filing documents that put liens on property and in answering requests for searches on liens.

Glitches in a new computer system made by FileNet Corp. in Costa Mesa and a lack of time for adequate training of state personnel on the new system are being blamed for the backlog.

Designed for 48-Hour Turnaround

The new system, designed to provide a 48-hour turnaround in certifying the status of liens on personal property, was turned on in April for a test period. But the new system was able to handle only about 30% of the daily demand for certification and was shut down in May, Jerry W. Hill, an assistant secretary of state, said Monday.

His office then reactivated its old computer system, which had been more than two weeks behind when it was shut down in April and has been unable to catch up.

Both Hill and FileNet executives said computer problems had been expected during testing. Those problems could have been eased had the state's Finance Department approved a request by Hill's office to spend $600,000 to keep the old computer system operating until the bugs in the FileNet system were worked out and his workers became familiar with the new equipment. But the Finance Department refused.

Bankers can't believe that the state did not allow for a break-in period.

"Have you ever heard of a computer system that works the first day?" asked Mark Simmons, president of Marine National Bank in Santa Ana.

Now, Hill said, the secretary of state's office is hiring 185 temporary workers for $500,000 to work on the old computer system in an effort to eliminate the backlog by Aug. 1, when he and FileNet executives hope to reactivate the new system.

FileNet, meanwhile, will spend $60,000 on new hardware and $115,000 on software adjustments to fix the problems, said Mark S. St. Clare, a company vice president.

And the daily work keeps piling up. Each day, Hill's office gets about 1,000 search requests and has to file about 3,000 liens and other documents.

Though Hill suspects that FileNet did not realize how busy his office is, St. Clare said a similar FileNet system is operating without problems in New Jersey.

But New Jersey, with half the demand, took a long time to get straightened out, said Richard Hall, general manager of UCC Network in Sacramento, a private service that handles state certifications for commercial lenders.

New York officials installed a less complex FileNet computer system several years ago and have been building that up to a more sophisticated system that will eventually replace all other computer operations, said Bob Castle, FileNet's marketing vice president.

California wanted to go immediately to a complex computer system, he said.

Before California's new computer system became fully operational in April, Hill said, the agency's entire prior database--1.8 million documents made up of 4.3 million pages--was electronically scanned and stored. Once fully operational, it just could not keep up with the daily demand to sort through those documents in search of prior liens.

The secretary of state's office has a backlog of 50,000 search requests to certify and 110,000 liens and other documents to file, he said. The office cleared out three days of backlog Thursday alone and eight days in the last work week, Hill said. But the agency can certify records only through April 11.

On Monday, the agency stopped processing all requests for certification while it concentrates only on filing liens, Hill said. By July, the agency should be able to resume certifying the status of liens attached to personal property as of the end of May, he said.

Borrower Paying Penalty

That does not help Sherwood, president of United American Bank, or his borrower, who is paying a penalty for his past-due loan from another bank.

"We're just a little bank, but you can imagine our problem multiplied many times over throughout the state," Sherwood said.

One of the biggest problems, he said, is in bank escrow departments, which search for liens on equipment, inventory and other personal property involved in the sale of a business.

United American has "two or three" escrows held up now because it cannot get certification, Sherwood said.

The slowdown in certifying liens "clearly has held us up," said Simmons of Marine National Bank. His small bank is oriented mainly toward business loans.

"It hurts our income because when you can't fund a loan, it's like having an empty seat on a plane," Simmons said. "But it affects the borrowers more. They need the money to make their businesses grow."

Commercial bankers and finance companies doubt that the secretary of state's plan to recover by Aug. 1 will work.

"They really have to commit more resources to get there," said Peter Burns, a vice president of Wells Fargo Bank. He heads the Commercial Finance Conference of California, a trade group of banks and commercial finance companies that secure their business loans with liens on various assets the borrower has.

Burns said the situation is harming smaller businesses because they often use asset-based loans for normal operating purposes, such as making payroll.

And when small businesses get hurt, Horton said, the small banks who finance their loans also get hurt, not only because banks make their money from lending, but also because business customers can go out of business.

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