What is a UCC Lien?
There are many credit risk devices out there and the Construction Payment Blog covers just about all of them. A UCC Lien is a very popular such risk device. UCC stands for Uniform Commercial Code. The technical name for a UCC lien is a UCC-1 Financing Statement. This is the standard by which each classifies personal (or where I come from, Louisiana, we call it movable) property. Businesses all over who extend credit will use personal property as collateral for potential debt rather than real (or immovable) property.
So basically there are three main types of security, 1) on real property (lien or mortgage) such as land; 2) a surety, which is usually a person but can be a company who personally secures a debt; and 3) security on all other types of property such as diamond rings, cars or any other chattel that has value. For this third type, businesses need to file a UCC lien in the particular county where the property is located.
Why Would A Business Need A UCC Lien?
A UCC lien acts in a very similar manner to that of a Mechanics lien on real property. It attaches to the personal property (goods or product) so that the property cannot be sold to another person or entity until the lien has been cleared. The filing of this document will “perfect” the security interest.
This is a good lien because most personal property is unencumbered. Most real property has a mortgage or some other security device on it already making equity is an issue. For a UCC lien most goods are paid for. Its possible for that for high priced property there may be other security such as a car note.
How Do You File A UCC Lien?
This is the tricky party. As with any legal paperwork the preparing of a UCC lien’s documents and getting it filed in the correct place are the most difficult tasks. The good thing about UCC liens is that they are “uniform” and are the same nationwide. Local jurisdictions will have some variance but overall they are the same.
Typically there will be one location per county or parish where the UCC lien will be filed. The name of the debtor, the secured party and the collateral covered need to be listed on the UCC lien. The fees are usually minimal and you as the filer should obtain a confirmation of the filing for your records. Typically the secretary of state will have information on how to file the UCC lien in your area. This example from the Louisianan Secretary of State’s site may be helpful.