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A cash advance company filed a UCC lien against one of our subs and asked that we pay the firm from now on, not our sub.

ArizonaLien Priority

We are a GC doing a job in Arizona. A cash advance company filed a UCC Lien on one of our subs working on this job. It looks like the cash advance company purchased the accounts receivables of our sub for a certain dollar amount, and the sub is now in default. We received a notice of the UCC Lien in the mail and it asks that we forward all funds owed to our sub to the firm representing this cash advance company instead. The UCC lien states that they are aware we owe the sub money, which we do as it's an ongoing job, but the lien does not mention our project at all. As the GC, we are wary of this and unsure how to proceed. This agreement between our sub and the cash advance company does not include us or our project, and we are not in contract with this 3rd party. We are obligated to pay our sub as we are in contract with them, not this 3rd party. If we don't forward the funds and our sub does not pay the cash advance company, can the cash advance company file a lien on our job? Should we look into issuing joint checks going forward between the sub and cash advance firm? How do we, as the GC, protect ourselves in this situation?

1 reply

Oct 1, 2021

You are going to need to have a lawyer take a look at both the UCC-1 financing statement, the underlying security agreement and you are going to have to talk to the sub to determine if they dispute that they owe the money. There are a lot of factors that go into this. Here is the generally applicable law. A.R.S. § 47-9406(a) permits a secured party to give notice the the account debtor (you), even prior to default, that the right of payment has been assigned and that payment should be made to the secured party. That same statute allows the account debtor (you) to discharge its debt to the subcontractor by making payments to the secured party. That is all as a general matter. But just because you are right on the law does not mean you are not going to get dragged into an expensive lawsuit by a subcontractor who is upset they are not getting paid as required under the terms of the contract. That is why you want to (1) make sure the security interest is valid and perfected properly; and (2) see how the sub is going to react if the checks start going to the third party.

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