A UCC-1 financing statement sits on the public record for five years unless and until the secured party files a UCC-3 termination. Even after you pay the underlying advance in full, the lien does not disappear automatically. Funders routinely fail to terminate, sometimes by oversight and sometimes by design.
UCC § 9-513 is the statute that puts the obligation on the secured party. Used correctly, it produces termination within 20 days.
What § 9-513 Requires
Under UCC § 9-513(c), a secured party must file a UCC-3 termination within 20 days after the secured party receives an authenticated demand from the debtor, provided that there is no obligation secured by the collateral covered by the financing statement, and the security agreement does not authorize advances or the secured party is not committed to make advances.
If the funder fails to comply, UCC § 9-625(e) authorizes statutory damages of 500 dollars per failure, plus actual damages caused by the failure to terminate.
The Authenticated Demand
The demand has to be authenticated, meaning signed (electronically or in writing) by an authorized representative of the debtor. It should identify the specific UCC-1 by filing number, state the basis for termination (the obligation is satisfied, the security agreement is terminated, no obligation exists), and demand termination within 20 days.
The demand should go to the secured party’s address of record. Email may not be sufficient; certified mail with return receipt or another method that produces a delivery record is the standard.
The authenticated demand is the trigger for the 20-day clock and the 500-dollar statutory damages. A sloppy demand without proper authentication or specific identification of the filing does not start the clock. The form of the demand matters as much as the substance.
What Triggers the Obligation to File a UCC-3
The obligation to terminate is triggered by one of these conditions:
- Satisfaction. The underlying advance has been paid in full, either by performance or by negotiated settlement.
- Termination of the security agreement. The contract underlying the security interest has been terminated by its own terms or by mutual agreement.
- Absence of an underlying obligation. The filing was made in error or relates to a transaction that never closed.
For MCA borrowers, the most common trigger is satisfaction through settlement. Once the funder confirms receipt of the settlement payment, the filing must come off within 20 days of an authenticated demand.
Negotiating the UCC-3 Into the Settlement
The cleanest way to avoid a § 9-513 dispute is to make UCC-3 termination part of the settlement agreement itself. Our senior advisors structure settlements so the funder delivers a signed UCC-3 into escrow at the time of payment, and the escrow agent releases payment only upon confirming the UCC-3 has been filed.
This sequence eliminates the post-settlement chase. The lien comes off the public record at the same time the funder gets paid. New financing or business sales can close immediately.
When the Funder Ignores the Demand
If the funder fails to terminate within 20 days of an authenticated demand, the remedy escalates. An independent attorney from our referral network can file under UCC § 9-625 for statutory damages of 500 dollars per failure, actual damages caused by the failure (lost financing opportunities, deal terminations, increased borrowing costs), and a court order directing termination.
These cases generally resolve quickly. A funder facing a fee-shifting damages claim and a court order rarely fights to keep an unauthorized filing on the record. The filing comes off within weeks of the action being filed.
If the funder fails to file within 20 days, you (through independent counsel) can file the UCC-3 termination yourself under the authority of § 9-509(d)(2). The SOS will record it. This is the fastest cleanup path when funders go silent after payoff.
The Self-Help Termination Option
Some jurisdictions permit a debtor to file an information statement under UCC § 9-518 disputing an inaccurate or unauthorized filing. The information statement does not remove the underlying UCC-1, but it puts a public record on top of it indicating the debtor disputes the filing. Future lenders running diligence will see both records and can evaluate the dispute.
The Sequence in Practice
For a typical merchant with two or three active MCA-related UCC filings:
- Run a UCC-11 search to confirm all active filings.
- Negotiate settlements with each secured party, with UCC-3 termination in escrow as a closing condition.
- Send authenticated demands for any filings tied to obligations that have already been satisfied.
- Escalate non-responsive funders through independent counsel for statutory damages and court-ordered termination.
- Re-run the UCC search after 30 days to confirm a clean public record.
Delancey Street is a business debt-relief company, not a law firm. When a matter requires legal work, we refer you to an independent attorney from our referral network; the attorney–client relationship is between you and that attorney.
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