The concept behind lien-monitoring is that the sooner a creditor knows about a lien, the sooner they can act to protect their interests. These programs run interval searches on debtor names to check for any new filing activity and then provide timely updates to alert a creditor to potential threats. What follows is an overview of items creditors tend to include in their monitoring efforts.

Federal Tax Liens

Many people consider Federal Tax Liens the most urgent of all liens because, in some cases, they can prime a perfected UCC. For asset-based lenders in particular, it is critical to know about a Federal Tax Lien as soon as possible as there is only a 45 day window after filing of the tax lien where the UCC will provide a creditor with priority protection for newly made advances or taxpayer receivables.

UCC3 Change Statements

Monitoring debtor names for UCC3 change statement is important for two reasons. First, it may reveal that another creditor has amended the debtor name or address on their filing, alerting you to a change that may need to be made on your own filing. And secondly, a creditor can watch to see if any unauthorized changes are being made to their own UCC, such as a fraudulent termination.

State Tax Liens and Judgment Liens

Many secured parties also elect to monitor for State Tax Liens and Judgment Liens. For State Tax Liens, a lender would want to know right away if their borrower is failing to pay their taxes as it could be an indication of financial distress. Furthermore, in some states, in certain situations a State Tax Lien can prime a UCC much like a Federal Tax Lien. With Judgment Liens, they may not have the ability to trump your filed UCC, but they certainly are a good indicator of character.

New UCC Financing Statements

Lastly, creditors often monitor for new UCC Financing Statements to learn of any new junior creditors. Most standard security agreements have restrictions on the other kinds of financial arrangements a borrower can enter into. A newly made UCC Financing Statement could represent the breaking of a covenant.

If you decide to begin monitoring your accounts, be sure to do some solid research up front. And remember, liens can be filed at either the state or county level. For the most comprehensive coverage, look to a service that searches both state and county filing offices.

*Disclaimer

Self-search

Much of the price associated with lien searching is the cost of labor. Working with an offline service provider can inflate due diligence invoices because you are paying a premium for the service company’s time, energy and resources to perform your search. To drive down costs, try working with a UCC provider that offers a web-based search system. The fees for self-searching on a privately maintained online system are often much lower than those incurred for a comparable offline search.

Take advantage of broad-based name searching

Another advantage of using an online UCC search system is that many incorporate broad-based searching features. This means that the system will allow users to input a truncated search name and/or wildcard characters in order to reveal name variations. Broad-based name searching can reduce search costs by combining associated names of interest onto a single search report rather than paying separately for each. If you decide to use an online search system, make sure to take advantage of its broad-based name searching capabilities.

Be mindful of copy costs

Most public record search companies charge a per page fee for copies of lien documents that accompany your search report. Active names can generate hundreds of dollars in copies that may not even be relevant to your deal. In cases where your search name is common or you anticipate a large number of hits, you may want to order a “listing only” search to start. Then you can review the report and order copies of only those documents that are pertinent to your transaction.

Monitor for liens

If you run periodic searches on your accounts to watch for changes that may impact their ability to repay debts, consider using a lien-monitoring service instead. Account monitoring providers will perform interval searches of your account names and promptly alert you to any new filings or changes to existing obligations. Monitoring services cost only a few dollars each month and offer an inexpensive and convenient way to stay informed.

Be sure to check back next week for the final post in our FAQ blog series!

*Disclaimer

Do nothing
There are only a few instances where a debtor-authorized termination is effective under Article 9 of the Uniform Commercial Code. As the Secured Party of record, if you did not grant authority to the debtor or fail to file a termination statement after satisfaction of the debt, the termination statement is likely ineffective. If the termination statement is ineffective, no further action may be required on our part to maintain your secured position.

File a Correction Statement
Upon discovery of a fraudulent termination, some Secured Parties are opting to file a correction statement with the filing office. Although the code only authorizes debtors to file correction statements, since they have no legal affect on the effectiveness of the filing, Secured Parties are using them as a means to note in the public record that the termination was filed without proper authorization.

File a new UCC1
Other Secured Parties have elected to address the termination by filing a new UCC1 Financing Statement, noting in the collateral description that their previous filing was fraudulently terminated.

Lien Monitoring
Lastly, consider taking advantage of a monthly lien monitoring program that will screen your accounts regularly and alert you to any critical filings that may jeopardize your priority position to collect on debts.

Be sure to review the code carefully and speak with your legal counsel when determining your best course of action.

* Disclaimer