The Role of Credit History in an Asset Search…
Credit history plays a critical role in any comprehensive asset search. Identifying the current debts of consumers or businesses is often a starting point for identifying active banking and lending relationships. It can also be a highly valuable took for evaluating the subject’s overall financial health, and adjusting strategies and expectations accordingly.
Certain criteria must be met before a consumer report can be legally obtained from one the credit bureaus, such as Transunion, Experian or Equifax, as outlined in the Fair Credit Reporting Act (FCRA). Permissible purposes include collection of a civil judgment, risk evaluations by insurers, investor due diligence and other legitimate business needs involving transactions initiated by the consumer.
Credit reports contain an overview of consumer credit cards, charge cards, car loans, credit lines, collection accounts, and mortgages, as well as their current status and payment history. This information often contains valuable leads for identifying the subject’s active banking relationships, which is a separate but related process.
For corporations and small businesses, credit reports will contain a generalized overview of credit accounts and supplier payments, as well as an assessment of the entity’s financial stress and delinquency risk. Revenue figures may also be provided for both public and private firms. However, when audited financial statements are not available, the revenue data is sometimes estimated based on proprietary formulas that consider factors such as the company’s size and specific industry (NAICS/SIC) and may therefore be widely off the mark. In other situations, company financials are self-reported by company principals, and may be unreliable. It is important to closely review any caveats and the sources cited for all revenue figures provided in these reports, and when practicable, obtain independent confirmation of the data.
If the subject of the investigation is an individual, but the nature of the case is not covered by any FCRA permissible purpose, then it is not possible to obtain an authorized copy of a consumer credit report directly from one of the bureaus. Fortunately, there are other investigative avenues that can yield valuable details on credit history.
Tax liens, bankruptcies, mortgages, evictions, foreclosures, collection suits, and other kinds of civil litigation are all public records. Recent civil suits and judgments against the subject should be closely reviewed for any garnishment filings that identify bank accounts and employers. Divorce suits also may divulge previously undisclosed assets. Commercial litigation may contain other significant details, such as ownership interest in closely held entities, intellectual property, affiliates and subsidiaries.
Uniform Commercial Code (UCC) financing statements are another area for research. UCC filings are public records that memorialize a secured loan, and they typically list the personal or business property that is being posted as collateral, which could be racehorses, crops, aircraft, copyrights, patents or trademarks.
My firm recently completed an asset search for a client who had a mid-six-figure judgment against an individual. Early in the process, we provided a credit overview of the subject that was overwhelmingly negative, containing numerous collections and charge-offs, a delinquent mortgage destined for foreclosure, and a home equity line of credit that had been suspended for nonpayment. The subject had no active consumer credit lines remaining – not one open credit card! – having burned nearly every institution that ever lent him money. The one exception was the satisfactorily maintained loan on his $50,000 Lexus – which was not at all surprising, because appearances are paramount when you are scamming wealthy investors.
The subject’s fraud against our client – which had resulted in a sizable judgment – was already proof this person had no sense of financial responsibility. What we did not know until we reviewed his credit history was that he also had no financial planning or self-preservation, which is quite common in fraud cases.
Within two weeks we had identified five active financial accounts for the subject, both investment and banking accounts. At least one account was overdrawn and the others had minimal balances. Evidently, the money he bilked from our client was long gone. If we had been retained to check his credit profile before the deal was completed – which is a service we provide when conducting corporate and financial due diligence – our client’s investment would most likely never have never been made. Or lost.
Beacon has identified more than $50 million in personal and business assets for our clients in the past two years. Knowing how to legally obtain and critically interpret a subject’s credit history is a small – but essential – part of that process.
About the Author: John Powers is director of Beacon Investigative Solutions. His articles on financial investigation and related matters have appeared in Huffington Post, AOL Money & Finance, Competitive Intelligence Magazine and The Legal Investigator. Email him at firstname.lastname@example.org or follow him on Google+ and at @JohnPowersPI.
About Beacon: Beacon Investigative Solutions conducts comprehensive asset discovery and financial background investigations for corporate clients, law firms, and government agencies.