What happens when you pay off a loan? You want the piece of paper that says, “Well, paid in full. I’m free and clear.” The trouble starts when that paper never shows up. Picture an owner who puts it this way: “I own a business. I borrowed some money from a bank. The loan was paid off. Now, the bank has still left a financing statement on the file. What I want is for them to remove the financing statement from the file. They refuse to do it. Can I sue the bank for not removing the financing statement?”
Section 9-625
You can. Now let’s see what the Code says. Section 9-625 of Article 9 of the UCC authorizes a party “aggrieved” by a secured party’s failure to comply with the article to seek injunctive relief, or actual damages, and in certain cases statutory damages. The section’s remedies extend to the secured party’s failure not only to repossess and foreclose in conformity with Article 9 but also to the secured party’s duty not to file an unauthorized financing statement, the duty to file a timely termination statement when required, the duty to respond to requests for information about the collateral and the debt under section 9-210, and the duty of good faith (Article 1, section 1-304). That last group matters here. A lender that sits on a termination statement it is required to file may be failing to comply with Article 9, and a stale lien can mean that new lenders won’t extend credit because of the security interest claim on present assets.
Is it better to show statutory damages or actual damages? Depends on the circumstances. Statutory damages are $500 under 9-625(e) when the secured party fails to cause the secured party of record to file or send a termination statement as required by 9-513(a) or (c). It is also $500 when a person files a record it was not entitled to file. Statutory damages are available in circumstances where actual damages may be difficult to prove. Who gets to collect? A debtor, a consumer obligor, or any other person identified as a debtor in a filed record can recover $500 in statutory damages. By contrast, actual damages can be claimed by anyone who (a) was a debtor, (b) was an obligor, or (c) held a security interest or other lien in the collateral at the time of the lender’s failure to comply.
Actual damages under 9-625(b) are “any loss” resulting, including loss suffered by the debtor because of its inability to obtain, or increased costs of, alternative financing. The prudent movant thinks like a finance officer, not a dry lawyer. But a claim for actual damages is only as good as your proof. You’re on the hook to prove both causation and the measure of those damages. And both issues can be complicated. Also, because they are largely factual, you don’t have a lot of room to argue over them on appeal. On top of that, recovering consequential damages in the form of lost business opportunities can be a tricky thing to do. In one Seventh Circuit case, the debtor claimed that a creditor’s improper conduct caused it to miss an opportunity to sell its business to a third party but the courts were not impressed. In fact, the trial court simply rejected the testimony of the debtor’s expert witness on damages.
If what you want is a court order rather than a check, injunctive relief is the other route. But, like with other equitable remedies, to get that you’d have to show a risk of irreparable injury and that there’s no adequate remedy at law. And if you think a filing is incorrect or was filed without your authorization, you can submit a correction statement, but that does not change the effectiveness of the original filing; you may have to take legal action to get the filing expunged. You’d think that the drafters would provide a better solution for the non-compliance, but they can’t see one, at least Article 9 can’t. At least one state, Texas, went further; lawmakers there added their own stuff about remedies for fraud and unauthorized filings.
There is also a cheaper lever to pull before any of that. You can ask the lender for a copy of the collateral list or an accounting. If the lender, without good reason, fails to provide that information, the borrower can recover $500 in statutory damages as well as actual damages. One catch: if you wrote in requesting information about your collateral and the creditor never claimed an interest in that collateral, it had “reasonable cause” for not complying with your request. Without a good reason, the lender is limited to claiming its security interest only as listed in the list or statement included in your request, as against a person who is reasonably misled by the failure. Finally, in a proper case, the borrower may recover tort damages, including punitive damages, under the supplementary principles of general law.
Initiate a Lawsuit Against the Lender
So should you sue? If your best bet to get it removed is to fight it in court, proceed with caution. There is no guarantee that a judge will side with you. How much will it cost you to initiate a lawsuit against the lender? The statutory award is $500, and anything more depends on proof you may not have. Please answer these questions honestly and before you take any action. Suing is legal work, and we are not a law firm. When litigation is the right call, we refer owners to a vetted independent attorney, and the attorney-client relationship is between the owner and that attorney.
Business Debt Settlement Company
Sometimes the stale lien isn’t the only problem, though. If the business is also carrying merchant cash advances or other debt it can’t keep up with, it may be time to think of an alternative that makes sense for the business. That is where a business debt settlement company like Delancey Street comes in: we focus on negotiating with the funder or lender for less than the full balance owed, instead of selling you another loan. A first consultation is free and confidential, and if a cheaper option exists, we will tell you so on the first call.
