If your company is behind on a loan, there may be a lien hanging over it, and you don’t even know it. A UCC lien is essentially a legal notice from a creditor to lay claim to a borrower’s collateral in case the borrower doesn’t pay up, and a federal or state tax lien gives the government legal claim to your company’s assets in case of unpaid taxes.
Put simply, a UCC lien is a private creditor’s claim to your collateral when you have a loan. If you owe taxes, the federal or state government holds a lien on your property. They’re often kept separately, so don’t expect to find everything in one search.
This is where it matters: UCC liens determine priority of payment when you default on your debt, and where your property goes first. A number of these assets could be the gear you need to keep the business up and running. Depending on your line of business, losing property may mean losing your business.
Liens also make borrowing harder. Lenders will check for liens before they loan, because if there is an active lien, they know they won’t be first in line to collect on collateral in the event you can’t pay them back. In that case, they may not see any remaining collateral they want to collect on, or they may assume you’ll run out of assets before it is their turn. Either way, even if you do pay the debt off, the lien is a risk factor in the meantime, and may prevent you from getting more funding.
UCC filings can be a red flag to clients and partners alike that you might not be able to meet your obligations going forward, and that is a deal breaker for many. People can look up these filings easily enough, too.
Search for Liens
Filing searches can be more complicated than they appear. In some states, filing notices are all recorded at the state level, making it easier to find all the liens; in others they are recorded at the county level, and here’s where it gets tricky, you need to know which county to check: debtor’s residence or place of business, or location of collateral. And you may need to look in more than one county.
Where do you start? Most of these databases are owned by government agencies. Here are four options, ranging from the quick and easy to the most complicated, and chances are you will want to use more than one.
Way number one: head to your state’s Secretary of State website. Most businesses are registered at the state level, so information about them can be found at the Secretary of State’s office. Each SOS office has a different online portal and database where you can search for business filings, and that includes UCC liens and federal and state tax liens. Search under your business’s legal name. If you do business in more than one state, make sure you search for them in each state.
Most people probably know to search for liens under the company name. But depending on how your lien is filed, it might be recorded under one of your owners’ name rather than the business name, so be sure to search your and your owners’ names and where you live and do business. A good search tool will let you search by business name, individual name, address, filing number, filing type and filing status.
Way number two is the UCC-11. A UCC-11 is an official request for UCC records, so you’ll download a form from each state’s Secretary of State website (New York’s is one example), fill it out, send it in to that state’s SOS, and wait for the documents to be mailed back. It’s slower, and it often requires registering for an account or paying a fee.
Way number three: check state or county recorder’s offices for tax liens. Where tax liens get recorded depends on state law; in states like Colorado, Mississippi, Illinois, and South Carolina, the tax lien registry is centralized and easy to search. In the remaining states tax liens are filed at the county level, and depending on whether the debtor is the business or one of its principals the lien could be in any number of different counties, where the owner lives, where the business operates, or even where the collateral is located. You may have to pay for hard copy documents.
The IRS maintains an Automated Lien System database that aggregates federal tax liens from all 50 states plus DC. You can obtain a copy using a Freedom of Information Act request; there’s an online version, or you can send it by fax or mail. As of January 1, 2023 there are no additional fees for it, but remember: that data may not be accurate, and it will come to you on a CD, so you’ll need a player that can read it.
Way number four: pay someone else. Ready to give up on knowing where to find each lien? Use a commercial search service to find it for you. These services search lots of databases and lots of jurisdictions so you don’t have to look. First Corporate Solutions, for example, has an Online UCC System, where you can search by debtor name, including partial names and wildcards, or by file number, filter by filing type such as UCC, tax, judgment or bankruptcy, and print reports or copies of documents.
CSC Global’s UCC Search covers every jurisdiction and finds variations, misspellings and other errors in names, which matters if a creditor misentered your name. It also offers a recurring, time-based service so it automatically updates your search results. Wolters Kluwer’s iLien system can search UCC liens, federal and state tax liens and real property documents across multiple jurisdictions.
The financing world runs on the same instruments. This service called Middesk, for instance, pulls data directly from state Secretary of State offices in all 50 states and the IRS, and shows the name of the debtor, the name of the creditor, the collateral, filing date and lapse date, the location the filing was made, and whether the filing is current. If your financier can see this in a few clicks, you really should, too.
Searching once isn’t enough. A company may not have any liens today but have one filed against it tomorrow. And don’t count on the creditors to let you know. It’s a good idea to run the search regularly, or if your system lets you, set up a recurring search so that new filings will be brought to your attention.
Now that you have the complete picture of who claims what, you know who is first in line, what they are claiming, and whether or not the lien is still active. That list is where you start if you’re going to dig yourself out or settle for less.
