1. Maximize Results to Minimize Risk

A good strategy for lien searching is to maximize your results in order to minimize your risk. This means, cast a wide net to bring in as many potential hits as possible and then whittle them down to only those that are pertinent to your transaction. Search systems that incorporate broad-based searching features such as truncated name searching and wildcard characters allow you to maximize results by revealing name variations. For offline searches, work with a service company that reports on similar names.

2. Expect to Find Something

Try this little trick: perform your searches as if you expect to find something. If you search in this way, you will be diligent in your efforts and it is unlikely you will miss a critical lien. Train yourself to be wary of a clear search report. Let a no record result give you pause; go back and confirm the search logic to determine if there is a reason why something may have been missed. For offline searches, alert your service provider if you anticipate hits on your search effort.

3. Stay Informed

Public records research is a dynamic field where new legislation is being passed and statues are evolving all the time. It is important to stay informed and up-to-date because what’s true for a search system or filing office today could change tomorrow. Take the time to investigate your options and understand what resources are available to you. And remember, reading blogs like this one, subscribing to industry journals and attending training sessions and educational events are all great ways to gain insight!

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Frequently Asked Question # 2:

Why should I search for Tax Liens and Judgment Liens?

Determining Priority

Just like a UCC Financing Statement, a Tax Lien or Judgment Lien has priority relative to other liens, based on its date of filing. The purpose of filing a UCC Financing Statement is to secure a position to collect. Therefore, it is critical for a lender to know if an outstanding Tax Lien or Judgment Lien obligation exists prior to funding, as these liens will likely prime a subsequent perfected UCC Financing Statement in the event of a default.

Involuntary Liens

Tax Liens and Judgment Liens are involuntary in nature. Meaning the financial obligation they represent is one the debtor has not entered into willingly. These lien types do not require a debtor signature and unlike UCC Financing Statements, there is no underlying agreement to which both parties agree.

A debtor cannot be counted on to disclose Tax Liens or Judgment Liens to a potential lender; in some cases, the debtor is not even aware of their existence. As such, a public records search to include Tax Liens and Judgment Liens is an essential step in creating comprehensive profile of a prospect’s outstanding obligations and ability to repay debts.

Remember, in many jurisdictions, Tax Liens and Judgment Liens can be filed with either the state or the county. An exhaustive lien search in these jurisdictions will include a search of both state and county filing offices.

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It’s a fact; public records can be confusing. Effective public records research requires the understanding of a dizzying array of codes and statutes, industry jargon and jurisdictional variances. As professionals in the field, there are certain questions that we get asked all the time. At First Corporate Solutions, we believe we fulfill a dual role of expert and educator, which is why are starting a blog series to address our most frequently asked questions.

Frequently Asked Question # 1:

I accidentally let my UCC1 financing statement lapse. What can I do?

A UCC1 financing statement is effective for a period of five years. A record that is not continued before its lapse date will cease to be effective, costing the secured party their perfected status and perhaps their priority position to collect.

Once a financing statement has lapsed, it cannot be revived. If the underlying security agreement endures, a secured party should work with their legal or risk management department to determine the best tack specific to their transaction. The following information represents a popular course of action.

Step 1: Perform a Lien Search

A lapsed UCC filing opens the door for once-subordinate filers to secure a priority position. If your financing statement lapses in error, it is a good idea to run a lien search in the appropriate filing office to see if any parties filed claim subsequent to your original UCC1. If your search reveals no additional liens, let out a sigh of relief and advance to Step 3.

Step 2: Damage Control

Should your search uncover any liens that were filed following your original UCC financing statement, those lien-holders may have moved into a priority position. For non-UCC liens such as tax liens, it is advisable to work with your debtor to find out if the debt has been satisfied. If so, you may want to ask the debtor to request that the issuing body file a tax lien release.

For UCCs, remember to review the collateral descriptions very carefully to determine if they represent a competing claim for the property set forth in your security agreement. If they do, consider contacting the other secured party to check if the debtor’s obligation has been satisfied, or if the secured party would be willing to negotiate a subordination agreement.

Step 3: File a new Financing Statement

After performing a lien search and taking what steps you can to minimize your risk, you will likely want to file a new UCC1 financing statement to secure a place in line to collect.

Please remember, if your UCC filing has lapsed in error, the most important step you can take is to consult with your legal counsel.

Although there is no way to revive a lapsed financing statement, there are tools you can use to minimize their occurrence. Try working with a UCC service company that offers a web-based UCC portfolio management tool. Many online filing systems include UCC tracking features that will alert you when filings are nearing their lapse date, allowing you ample time to prepare continuations.

Check back next week for Part 2 of the FAQ blog series!

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Did you know that you can file a UCC in Canada? Okay, so it’s technically not a UCC since the Uniform Commercial Code system is an American one, but Canada does have a system called the Personal Property Security Registration System which is analogous to and based upon our UCC system.

This system, much like our Uniform Commercial Code, records and reproduces info regarding loans where collateral is used to secure the loan. This system also records and reproduces information regarding repair and storage liens.

If you need to file a financing statement, you will have to complete and submit a document, which has to be done electronically, to the Companies and Personal Property Security Branch of the Ministry of Government Services.  Within 30 days of registering the financing statement, the lender must provide the borrower with details of the registration so that the borrower can review and advise of any errors as necessary.

Unlike the US, where financing statements are active for 5 years unless a continuation is filed, the lenders must select the time period for the registration, which can be for as long as 25 years, or for a perpetual period (note: this only pertains to business loans; consumer loans can only register for up to 5 years at one time). Once the consumer loan is repaid, the lender registers a “discharge” within 30 days, similar to our termination filings.

With proper licensing, both PPSA searches and registrations can be accomplished via remote database access.  Many public records firms here in the United States have achieved authorization and can complete your Canadian requests efficiently and affordably.

Updated Post: Filing Financing Statements in Canada

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There are five types of UCC3 Filings:

• Continuations extend the term for a Financing Statement by an additional five years
• Party Amendments add, delete or change debtor or secured party information
• Collateral Amendments add, delete or restate collateral covered by the statement
• Assignments convey rights in collateral to another secured party
• Terminations cancel effectiveness of a filing prior to its lapse date

Here are a few common mistakes to watch for when filing UCC3 Change Statements:

• Multipurpose Filings: most jurisdictions will not accept a UCC3 that includes multiple transactions on a single form. For example, if an original UCC1 filing needs to be continued and amended to include an additional debtor address, these changes must be submitted to the filing office via independent UCC3 Change Statement forms.
• Incorrect Original Filing Information: a UCC3 must list the correct filing number and file date from the original UCC1 Financing Statement, even if the document has since been amended or continued. Note that many filing offices have strict rules about the formatting of file numbers. Be sure to list the filing number exactly as it is shown on the filed UCC1 including any spaces, hyphens etc.
• Untimely Continuations: continuations can only be filed within six months of a Financing Statement’s lapse date and filing offices will reject a document that is submitted prematurely. Please see our previous blog post for more detailed information on when to file continuation statements.

Lastly, consider partnering with a service company that offers a web-based UCC filing and portfolio management system. Many have form-filler tools that pull information directly from filed UCC data to facilitate easy filing of error free UCC3 Change Statements.

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The other issue is that since Delaware requires that you run a UCC search through an agent (they publish a current list of agents on their website), it’ll be dumb luck whether you’ll get one that will search and provide name variations. Because the folks processing the searches tend to each process a little differently depending on how long they’ve been in the industry and with whom they trained, the processes might even be different within the same company from person to person. The bottom line is, if you want name variations, just make sure you ask when you place your search request with someone; some provide them with all searches, some will charge an additional fee to provide them, and some won’t provide them at all. It’s important to know into which category your service provider falls to ensure you’re not missing any important liens when you’re performing your due diligence.

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Here are a few common mistakes to watch for when filing UCC1 Financing Statements:

• Avoid “dba” notation for fictitious or assumed business names as debtor
• Failure to file under the debtor’s true and correct legal name
• Incorrect type of organization listed for business debtors
• Listing of a faulty or incomplete address for the Debtor or Secured Party
• Filing a document in the wrong jurisdiction
• Missing attachment pages

Rejected filings cost a Secured Party time and money, but the above listed errors can be much more dangerous because they would rarely cause a filing officer to reject a document. These mistakes often make it into the public record, only to be discovered during the course litigation.

To guard against damaging filing mistakes, consider working with a service provider that performs a thorough quality review of your documents prior to submission. A well-trained eye can catch many of these before it’s too late!

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The first date to keep in mind is the Financing Statement’s lapse date. For a Financing Statement to remain effective beyond the initial five-year term, a continuation statement must be filed prior to the filing’s lapse date. The Uniform Commercial Code establishes that a Continuation Statement is acceptable for filing only within six months of the lapse date. Continuations submitted for filing outside of the six-month window will be refused by the filing office.

The second date to remember is the UCC1 Financing Statement filing date. A Continuation Statement extends the term of the Financing Statement for an additional five years from the date of the original UCC1 filing, regardless of the filing date for the Continuation Statement. Even if a Financing Statement has been continued several times, the lapse date is always calculated from the filing date (month and day) of the original Financing Statement.

To simplify the process, try working with a service company that offers a web-based portfolio management tool. Many online filing systems include UCC tracking features that will alert you when filings are nearing their lapse date, allowing you ample time to prepare continuations.

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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.

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The easy answer to this question is that it doesn’t cost much to incorporate in Delaware compared to most other states; plus, if you don’t actually conduct business in Delaware you don’t have to pay corporate taxes, and you don’t even need to be a Delaware resident to incorporate in Delaware.

If you ask a lawyer, however, the first thing you might hear is that Delaware’s Court of Chancery is one of the most highly regarded in the country. Dating back to 1792, the Court of Chancery came to be the place where corporation law issues were concentrated, and therefore the Court developed an expertise in corporation law matters. This expertise brought more cases which, in turn, gave the Court more expertise. Additionally, the Delaware legislature gives high priority to corporation law matters.

The Delaware General Corporation Law itself is written with every effort to make drafting documents as simple as possible, and with a bias against regulation. When businesses were threatened to be deprived of able leaders due to high cost of liability insurance for directors and officers, Delaware led the way in permitting stockholders to limit the liability of directors by using appropriate verbiage in the charter document.

One of the big selling points of Delaware is that its law is studied and accepted as standard throughout the United States, so managers of Delaware corporations don’t have to look elsewhere for guidance in legal matters.

Those of us who work with Delaware on a daily basis know how easy the Secretary of State is to deal with, and is a modern, user-friendly office. Thanks to the second shift, documents can be filed until 11:59pm, and filings can be submitted on a wide array of expedites including 24-hour, same-day, 2-hour and even 1-hour. Online registered agents can view documents and obtain plain and certified copies, certificates of good standing, and UCC searches themselves on a same-day basis, as well as submit filings directly to the SOS.

This means that Delaware provides some of the best service in the United States, so when you add that to the benefits of simple corporate law and tax breaks, why wouldn’t you incorporate in Delaware?

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