A: Many states, like Missouri, have a dual filing requirement where UCC filing notices are recorded with both the recorder of deeds in the county where the property is located and with the office of the secretary of state corporation section.  Other states may have single filing requirements in either of those offices.  In any case, the burden is reasonably upon the business purchasing the asset to check with the appropriate office and see whether any filing exists which might impact the title or ability of a creditor to perfect a lien as to that collateral.

Jay Umansky

Saint Louis MO

A: If its mobile like a truck, you need to check the title.  If its stationary like a factory, UCC filings. In most states UCC notices are filed at the local town or county as well as with the state .  Often you can check them online.   Here we can check the UCC filings at the Secretary of States office, on the website.  You need to be careful of exact names to check, and check all variations and trade or d/b/a names. If the company has bank financing, it is likely to have UCC's filed, but not always.  

Mark Lindner

Lindner & Associates PC

Needham MA

 A: First and foremost, a UCC lien search should be conducted by a title company.  If you are taking equipment as collateral, you need to find out if it is pledged to anyone else.  The UCC will determine priority.  Typically, while a debtor is located in a particular jurisdiction, the local law of that jurisdiction will govern perfection of the lien and priority.  Thorough due diligence on the front end of a credit arrangement will lead to better return on the back end.  Most financial institutions will have placed a lien on all equipment so it is essential to determine if the debtor is encumbered.  A quick asset search can give a hint, but is not a replacement for a search backed by a title company. 

In order to protect your credit, getting a financial statement from the debtor and updates quarterly (annually at a minimum) can help.  Build this into your credit agreement and get a personal guaranty to also back up the credit.  If any fraud or misrepresentation occurs at the time of commencement of the credit or thereafter, it can be a basis for piercing the corporate veil or to prevent discharge in bankruptcy if needed later.  Recovery through a fraud action, however, is often cost prohibitive so it is best to simply conduct your due diligence up front, monitor the strength of the credit and the value of the collateral throughout, and be sure that you have a priority and perfected interest in the equipment.

A: In Wisconsin, it is relatively easy to find out if there are any voluntary liens against equipment that is being purchased.  You can check with the Wisconsin Department of Financial Institutions, and they will show all of the liens that have been filed against the assets of the party that is selling the equipment.  A check of those liens will determine if the equipment that is being purchased has any recorded liens.  If there are judgments or other liens that have been obtained involuntarily, the party obtaining those liens must obtain possession of the equipment in order to perfect their lien.  Therefore, if the equipment is still in the hands of the seller at the time of your purchase and there are no filings with the Wisconsin Department of Financial Institutions, the equipment should be free and clear.

When purchasing equipment, there should be some sort of contract setting forth rights and obligations.  Included in the contract should be a warranty by the seller that it has unencumbered ownership of the equipment at the time of sale.  There also should be a hold harmless agreement, holding the purchaser harmless from any claims of third parties, and requiring the seller to pay all attorneys fees for defending such claims.  If the seller is a corporation or limited liability company, the purchaser should require a personal guaranty by the principal of the seller in reference to all of the above obligations.

A: To determine whether personal property has liens recorded (perfected) against it, the prospective purchaser (or anyone contemplating taking a security interest in the equipment, as security for repayment of an obligation), the best way of verifying status of liens is to run a UCC lien search.  Liens against equipment (personal property) would generally be perfected by a secured party recording a UCC1 with the Secretary of State.  Many services/vendors offer this service of potential creditors.  The most common example is Parasec, a third party service that will run a UCC search for you.

This is also the best way to protect from misrepresentations by a debtor, because if the debtor has already hypothecated his interest in the equipment that he now proposes to "sell" to you (or grant as "security" to you), it will most likely be revealed in the UCC search.