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13 Jan 24

The UCC Lien Process Explained from Start to Finish

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Last Updated on: 17th January 2024, 04:51 am

The UCC Lien Process Explained from Start to Finish

So you want to know all about UCC liens and how the process works from start to finish, huh? Well, you came to the right place! I’ll walk you through it in plain English so even someone without a law degree can understand.

What is a UCC Lien Anyway?

Let’s start with the basics. A UCC lien is a legal claim or security interest that a creditor puts on a debtor’s property to ensure payment of a debt. It allows the creditor to seize and sell the property if the debt isn’t repaid.The UCC stands for the Uniform Commercial Code, which is pretty much a set of model laws governing commercial transactions that most states have adopted. The relevant parts for our purposes are Article 9, which covers secured transactions like liens.

Why Would You Want to File a UCC Lien?

Some common reasons creditors use UCC liens include:

  • To secure repayment of a loan or debt
  • To put “dibs” on a debtor’s property if they default
  • To establish priority over other creditors also owed money

Basically it’s a way of staking your claim and saying “Hey, this person owes me money, so I have rights to their stuff if they don’t pay up.”

Step 1: Identifying Collateral to Lien

The first step is figuring out what property or “collateral” you want to lien. This is the valuable stuff you can seize if the debtor doesn’t repay you.Common examples include real estate, vehicles, equipment, inventory, accounts receivable, etc. You’ll want to pick assets that are valuable enough to satisfy the debt if sold.Do your homework here – it’s on you to correctly identify the legal property owner. If you accidentally lien something belonging to a third party? That spells trouble, my friend.

Step 2: Determining Where to File Your UCC Lien

Here’s where things get a little tricky. The next step is determining where to file your UCC-1 financing statement to make the security interest “attached and perfected.”This basically means legally valid and enforceable against third parties under the UCC. It’s what gives you the right to seize and sell the collateral if necessary.Where to file depends on what type of collateral you’re liening:

  • Consumer goods – File with the state’s Secretary of State office in the debtor’s state of residence.
  • Business equipment – Also file with the Secretary of State in the debtor business’ state of incorporation.
  • Real estate – Record your lien at the county recorder’s office in the county where the property is located.

You’ll also need to check your state’s specific UCC filing requirements too. Some make you register different types of collateral in multiple places. Fun right?

Step 3: Preparing and Filing the UCC-1 Form

At this point, it’s time to fill out the actual UCC-1 financing statement form. It’s only a page long, but you need to get it exactly right or your lien could be rejected.Here’s what needs to go in each section:

  • Debtor name and address – The legal name and address of the person/business that owes you money.
  • Secured Party name and address – Your name and mailing address.
  • Collateral description – Detailed description of the property you’re liening. Get as specific as possible here.

Once your UCC form is fully filled out, you’ll file it with the appropriate Secretary of State or county recording office along with the required fees. This officially puts other creditors on notice to your secured claim.

Step 4: Monitoring the Lien and Debt

Now comes the waiting game. Your UCC lien remains effective for 5 years from the filing date. You can extend it by filing a continuation statement before it lapses.During this time, you’ll want to monitor whether the debtor tries to sell or borrow against the collateral without paying you. If they default entirely, you can start seizing collateral after sending required notices.Things get real fun if another creditor tries to file a competing lien on the same property! Better brush up on your lien priority rules.And of course, keep contacting the debtor seeking repayment on the actual debt. Because if they eventually pay up? You’ve got to release that lien ASAP.

Step 5: Releasing the Lien Once Repaid

Let’s say the debtor finally pays their debt or you successfully seize and sell the collateral. Either way, you got your money and no longer have a security interest in their property.Now you’ve got to file a UCC-3 form to terminate your original UCC-1. This formally releases the lien so the debtor can freely use the property again without your claim attached.Another job well done! Got any other debtors who need encouraging? Now you know how to slap a UCC lien on their assets lickety split. Let me know if you have any other questions!