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UCC Liens and Judgment Liens: Understanding Their Coexistence

UCC Liens and Judgment Liens: Understanding Their Coexistence

When it comes to liens, things can get a little confusing. You’ve probably heard of UCC liens and judgment liens, but what’s the difference? And can they coexist on the same property? Keep reading to get a better understanding of these two common types of liens.

What is a UCC Lien?

A UCC lien, also known as a Uniform Commercial Code lien, is a type of consensual lien that gives a creditor security interest in a debtor’s personal property. This includes things like equipment, inventory, accounts receivable, etc.UCC liens are established by agreement between two parties – the debtor and the creditor. The agreement gives the creditor the right to seize specified assets if the debtor defaults on their loan or other obligation. To make the UCC lien official, the creditor must file a UCC financing statement with the state.Some examples of when a UCC lien might be used:

• A bank lends money to a business and takes a UCC lien on the business’ equipment or accounts receivable as collateral
• A contractor does work for a company and obtains a UCC lien on the company’s inventory until they receive payment
• A farmer borrows money and the lender files a UCC lien on the upcoming crop harvest

So in essence, a UCC lien allows a creditor to claim rights on personal property owned by the debtor in case of non-payment. The lien is established by mutual agreement and by filing paperwork with the state.

What is a Judgment Lien?

A judgment lien is a bit different. This type of lien is obtained by a creditor after they win a court judgment against a debtor. Basically if someone sues you, wins, and you don’t pay – they can get a judgment lien against your assets.Here is a typical example:

• Jane slips and falls in a store owned by Bob
• Jane sues Bob for her injuries and wins a judgment of $100,000
• Bob doesn’t pay Jane the $100k he owes
• Jane gets a judgment lien on Bob’s property

So in this case, the judgment lien allows Jane to seize Bob’s non-exempt assets, force a sale, and get paid from the proceeds.The key difference from a UCC lien is that judgment liens don’t require the debtor’s consent. They are imposed against the debtor’s will through the legal process.

Can UCC Liens and Judgment Liens Coexist?

Yes, it’s definitely possible to have both types of liens on the same property.For example, let’s go back to our farmer who borrowed money and now has a UCC lien on his upcoming crop. If someone were to win a court judgment against the farmer and obtain a judgment lien – both liens could exist on the crop simultaneously.However, there is an order of priority between the two types of liens:

• UCC liens have higher priority – If the farmer defaulted and both the UCC creditor and judgment creditor attempted to seize the crop, the UCC creditor would get paid first.
• Judgment liens are secondary – The judgment creditor could only collect from any remaining proceeds once the UCC creditor’s lien is satisfied.

So essentially the UCC lien is senior while the judgment lien is junior. The UCC lien must get paid off first before the judgment lien holder can collect.

How to Find Existing Liens on Property

If you’re considering purchasing real estate or other high value property, it’s important to check if any liens exist. Here are some options to investigate liens:

• Title search – For real estate, work with a title company to research all filings and liens attached to the property’s title.
• State UCC database – Every state has a UCC lien database you can search to uncover security interests on personal property.
• Court records – County clerk offices maintain real estate records along with any judgment lien certificates.

Conducting a search can avoid situations where you unknowingly take ownership of property that is encumbered by unknown liens.

Removing or Discharging Liens

If you own property that you wish to sell or refinance but existing liens are standing in the way, you’ll need to go through a process to clear title.To remove a UCC lien:

• Pay back the loan or obligation that led to the lien in the first place, and request a lien release from the creditor
• If the associated debt is already paid, contact the creditor to file a UCC termination statement

To remove a judgment lien:

• Pay off the court judgment. Once satisfied, the court will discharge the lien.
• Challenge the judgment itself if you believe there are legal errors

In some cases, you may need to sue in court to compel the creditor or judgment holder to release their lien if they refuse to cooperate. But ideally, communicating with them directly and meeting your financial obligations can remove most liens.

Using Lien Protection Insurance

Another option that homeowners and property owners sometimes rely on is lien protection insurance or lien defense coverage. This type of policy helps defend against unknown liens that may crop up and threaten your ownership rights.If a lien were to emerge, the insurance company would appoint legal counsel and cover associated costs with removing the lien. This can provide peace of mind against any liens that slip through the cracks during purchase.

Working with a Knowledgeable Attorney

As seen above, UCC liens and judgment liens have some technical differences. There may also be state-specific laws and regulations that affect how they operate. Because of that complexity, working with a qualified lawyer can help fully protect your rights.An attorney experienced in real estate law, contract law, and debtor/creditor rights can assist with activities like:

• Reviewing property title work and liens
• Drafting UCC lien agreements
• Challenging improper judgment liens
• Guiding you if a lien dispute ends up in litigation

Don’t leave it to chance and handle lien issues on your own. A competent lawyer can provide counsel tailored to your unique situation.

Resources

For further reading, here are some additional resources on UCC liens and judgment liens:

• Overview of UCC Liens from the Balance
• What is a Judgment Lien? from Nolo
• UCC Lien Priority Video from law firm