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Getting that UCC Filing Removed After Paying Off Your Biz Loan

So you finally paid off that business loan that was hanging over your head for years. Congrats! It feels so good to get out from under that debt. But then you notice the lender never removed their UCC financing statement filing. Ugh! Now what?
This happens more often then you would think. Just because you paid off the loan fully doesn’t mean the lender will automatically remove the UCC filing. You need to request they remove it. If you don’t, it could cause problems getting loans with other lenders in the future.
Let me break down what a UCC filing is, why lenders file them, how to get them removed properly, and what to do if the lender ignores your requests.

What is a UCC Filing Anyway?

When you take out a business loan that is secured by any business assets – equipment, machinery, accounts recivable etc. – the lender will probably file a UCC-1 financing statement with the Secretary of State’s office. This filing puts other lenders on notice that they have a security interest in those assets.
It’s kind of like if you took out a mortgage on your home. The lender files paperwork at the county clerks office to put other lenders on notice. Same idea.
These UCC filings protect the lender by locking in their priority position. It prevents another lender from coming in and getting a higher priority interest in the same assets.
For example, if you used an asset as collateral with Lender A, then took another loan from Lender B and used the same asset, the UCC filing would establish Lender A has first dibs on that asset if you default.

Why Don’t Lenders Automatically Remove Them?

You would think any good lender would remove the UCC once the loan is satisfied. Unfortunately, many don’t due to laziness or crappy processes.
Some lenders wait to see if the payment clears first. Others have procedures requiring the borrower to request the filing removal in writing. And then it falls through the cracks because they are so disorganized.
It’s lame and causes unnecessary headaches. As a borrower, you should not have to babysit them to remove UCC filings! But until lending laws change, that is the reality we deal with.

How to Get that UCC Filing Removed

To get a UCC terminated after paying a loan, follow this process:

1. Gather Details – Have your loan documents handy. Note the entities involved, loan numbers, assets used as collateral, filing dates and locations etc.
2. Request Release in Writing – Send a letter via certified mail to the lender, requesting they file a UCC-3 Termination Statement to remove the filing. Include all pertinent loan details. Keep a dated copy for your records.
3. Follow Up – If you don’t receive confirmation they removed it within 30 days, follow up again in writing. Sometimes things fall thru cracks.
4. Check Online Records – Before applying for new financing, check your state’s UCC online database. Search under the owner’s name and entity name to verify the filing was removed by your previous lender as agreed.
5. File Your Own Termination – If all follow ups fail to get your previous lender to terminate it, you can file a UCC-3 Termination yourself in most states. This releases their lien rights. Each state has their own rules and forms for this.

Having an old UCC financing statement still floating around can hurt your chances at getting approved for a future loan or line of credit. It makes lenders nervous about priority positions.
That’s why you need to be proactive getting these removed properly. Don’t let a lazy previous lender hurt your business!

When Filing Your Own Termination is Risky

While most states allow you to file a termination statement yourself, there are some risks to consider:

• The lender could turn around and re-file – If their UCC lapsed unintentionally, they may file again after seeing your termination. This could spark a legal battle over who has priority rights.
• There could be impacts on past loan guarantees – If any owners or partners guaranteed the paid off loan personally, terminating the lender’s security interest could potentially impact those guarantee obligations. Tread carefully.
• The lender could allege you still owe funds – If there is any dispute over whether the loan payoff was calculated properly, the lender may claim you had no right terminating their lien rights. Get written payoff confirmation to avoid this.

Because of situations like these, it’s best to consult an attorney before filing your own termination statement. They can review the loan docs, verify there is no remaining balance or guarantees, and determine if any notifications to the lender are required first.
An ounce of prevention here goes a long way!

When to Enlist Help of an Attorney

If you have followed up in writing multiple times and the lender still drags their feet removing the UCC, it may be time to get your attorney involved.
They can dig into the original loan documents to see what rights and obligations still exist for both parties. If the lender is unresponsive or unwilling to file termination paperwork, a strongly worded letter from an attorney often gets them moving!
As a last resort, your attorney can go to court and get a judge to order the financing statement removed. But most lenders will happily remove it once they realize you are lawyering up over it. Even if the loan was sold to another servicer or lender, their attorney will facilitate removal.

Prevention is the Best Medicine!

They say an ounce of prevention is worth a pound of cure. That definitely goes for UCC filings and business loan documentation.
When negotiating a secured loan, include language in the agreement requiring the lender to file termination within 30 days of final payoff. This gives you solid legal grounds to get it removed if they drop the ball later.
Also consider an escrow arrangement where the loan closing documents are held with an attorney or title company. They can automatically file the termination as soon as the funds are disbursed. That prevents any hassles down the road.
I know this stuff can seem intimidating when you just want funding for your business. But take it from me – the few hours you invest upfront preventing any UCC issues will save you big time headaches later!
Let me know if you have any other questions on removing UCC filings. I’m always happy to help!

Good luck with your new lending ventures!

-Julie

Business Finance Nerd