You paid the loan off, but the old lender’s UCC financing statement is still on file with the state, and the lender won’t terminate it. The failure to file a termination statement can affect your financial health and your business prospects. Unremoved financing statements may scare off a new lender or cause you to fail a lender’s due diligence. Debtors who have cash flow problems may find it too much to worry about their filing status, but the problem can still come back to haunt you. Why would a lender ever fail to? Whatever the reason, you are not without options.
Article 9 of the Uniform Commercial Code imposes a few obligations on secured lenders, including not filing financing statements without authorization and filing termination statements when the law requires them. Lenders must also provide information to debtors upon request, and act in good faith. A party who is harmed by a lender’s failure to comply may seek relief from the court, either an injunction or damages. In other words, the lender’s silence has consequences, so that should help put pressure on them.
When a lender doesn’t file or send a termination statement as required, the debtor (or anyone named as a debtor in the filing) can collect statutory damages of $500. This law exists because actual damages can be difficult to prove, and it can be recovered in addition to actual damages.
If a lender’s failure to act causes you to lose a financing deal or pay a higher price for one, you can recover ”actual damages” — basically all the money you lost directly because of the lender’s mistake. The catch is, you have to prove causation and the exact amount of the loss, and sometimes those can be messy questions. Lost business opportunities, in particular, are notoriously hard to prove. In one federal appeals case, Automotive Finance Corp. v. Smart Auto Center, a dealer argued that a lender’s improper repossession of its inventory had prevented a sale of the business. The trial court gave that argument little weight and basically rejected the dealer’s expert witness, and the Seventh Circuit affirmed. It wasn’t a lien case, but the lesson carries over. This means you have to show that your proof isn’t just a guestimate. But don’t give up; you need to see what you’re up against.
If your lender violated its Article 9 duties, you’re not the only person who can seek actual damages. Anyone who, when the lender failed to comply, was a debtor, an obligor, or had a security interest or lien on the collateral can bring that claim.
An injunction is what lawyers call an ”equitable remedy”. To get an injunction, you have to prove that you’d face a risk of irreparable harm otherwise and that no ordinary remedy (like money) can fix it.
Correction Statement
If you think someone filed an incorrect or unfounded financing statement against you, you can file a correction statement. This doesn’t undo the original filing, though. Article 9 writers admit that they can’t fix all the problems with the UCC filing system. Depending on the situation, you may have to go to court and get the filing removed altogether. At least one state, Texas, has passed a law providing additional remedies for fraudulent and unauthorized filings. Statutory damages of $500 also apply if someone records a legal document they have no right to record (like a fraudulent lien).
Send Them a Formal Request
If your lender is dragging their feet, you can send them a formal request for a list of your collateral or a statement of account. If they fail without reasonable cause to respond, they can be on the hook for $500 in statutory damages plus your actual damages. A company that never claimed an interest in your collateral counts as having reasonable cause, though. So make sure you’re asking the right company. They could also be limited to claiming the security interest as described in your list against any person who was reasonably misled by their failure. In the right circumstances, general law could also allow for tort damages, including punitive damages. Maybe the lender doesn’t have a good reason, and your request puts them on notice that the mistake will have consequences. Either way, you may have more leverage than you realize.
Sometimes, though, the lien stays put because the lender says the business still owes it money. If that balance is real and you can’t pay it in full, the problem is no longer paperwork. This is where a business debt settlement company like ours steps in and negotiates with the creditor for less than the full balance.
If you’re dealing with an unterminated lien right now, start by contacting your lender and see if they’re just forgetting about it. If not, send them a formal request to get the ball rolling. If the lender still isn’t moving, make a list of the damages you’ve suffered, and seek the help of a lawyer who knows Article 9 inside and out. Of course, it is important to figure out what you need before going to court, but it’s always a good idea to line up your options. Delancey Street is not a law firm; when litigation is the right call, we refer owners to a vetted independent attorney. You’ll have to weigh the risks.
Be sure to check the filing status of any debt you pay off or settle. A lien that won’t go away is a difficult thing for both individuals and businesses. But the UCC and other laws have your back. And there are more options than just waiting around until they creak. If the lien is one piece of a bigger debt problem, a first consultation with us is free and confidential.
