UCC Liens and Tax Liens
A lien is a sign that a business might be in financial trouble due to an unpaid debt. Lenders and other financial institutions look for UCC liens and tax liens before they do business with a company, and regard a lien as a serious red flag. The information is available to the public from the IRS and from Secretary of State offices, so a business owner can check the same documents a lender looks at.
Start with what a UCC lien actually is. Essentially, a “UCC lien” is a notification from a creditor saying, “If you default on your loan, I want first crack at the collateral you pledged.” It basically dictates the order in which creditors can take your collateral to pay off your debt if you default on a loan. In some cases, a UCC lien may also indicate the specific order of assets that the lender can repossess.
A federal or state tax lien is just a way for the government to legally claim your property if you’ve failed to pay your taxes. A tax lien is usually filed by the IRS, but sometimes it’s the result of state taxes.
To a lender, a lien acts as a negative signal. It suggests that your business may not be able to pay its debts. An outstanding lien could get in the way if you try to raise more money, even if you can pay off everything you owe. Why? Because a lien tells another potential lender that they wouldn’t be first in line to be repaid if you defaulted. They might not see any collateral worth seizing, or they might think you’ll run out of assets before it’s their turn to collect.
Recorded at the State or County Level
So where do you look? The state you’re in dictates whether liens are recorded at the state or county level. If your state requires a county search, then you need to know exactly which county the debtor is located in, or where the collateral is physically located. You may need to search several different places before you find a lien.
Most businesses in the U.S. are registered at the state level, so the Secretary of State’s office is usually the first stop. Every Secretary of State has its own website and database of business records, including UCC and federal/state tax liens. Type in the legal name of your business. This means the one on your business registration documents - not the name you’re actually using! Or you can pull a UCC-11 form (an official request for UCC info) from the Secretary of State website, fill it out, send it off, and then wait for the forms to show up in the mail. This can take a while, and it might mean you have to sign up for an account and/or pay fees.
Tax liens may be recorded somewhere else entirely, at a state or county recorder’s office. Some states, like Colorado, Mississippi, Illinois and South Carolina, have centralized registries for tax liens. In other states the liens are tracked in each county. The lien could be in the county where the owner lives, where the business operates, or where the assets used as collateral for the business are located. The clerk may want to charge you a fee to make a hard copy of the document.
You can also go to the IRS itself. The Automated Lien System (ALS) database is updated by the IRS with liens filed in all 50 states and DC. You can get a copy online, by fax, or by mail by submitting a Freedom of Information Act request. There’s no extra charge to request it as of January 1, 2023. Keep in mind that it might not have every detail about federal tax liens, so the information could be incomplete or incorrect.
Sometimes a tax lien or creditor lawsuit requires an attorney. Delancey Street is a business debt settlement firm, not a law firm, so when a case calls for a lawyer, we’ll refer you to a vetted independent attorney.
Third-party Services
Some third-party services do lien searches for you. That means they grab the filing information — UCC and tax liens, etc. — directly from the government databases, and they search more than one of them at a time. So they cut down on a lot of the legwork involved in figuring out which database a lien is in. You can run the search by business name, individual name, address, filing number, filing type or filing status. The results may include the name of the debtor and creditor, collateral, filing date, lapse date, filing location and current status (active or not).
If the liens on record are for merchant cash advance funders or lenders the business can no longer afford to pay, we can negotiate with those funders and lenders on your business’s behalf to pay less than the full balance due. We don’t sell another loan.
Even if you’re lien-free today, a new lien could be recorded against your business later on. (Lien status is a moving target.) If you use a service that performs time-based searches, it will keep sending you new reports automatically. Just remember to check the status on a regular basis - don’t assume the information stays the same forever.
Knowing who has liens on your business can tell you who has a claim to your assets, and how much priority they have. The first call to our office is free and confidential. If there’s no way to win your case, or there’s a cheaper way to deal with your debt, we’ll tell you in the first call.
