Risk Management Blog

UCC & Corporate Due Diligence

Resource Guide for Legal and Financial Professionals

Lien Monitoring Programs: What Liens To Search For

UCC, Lien Monitoring

Once a creditor has filed their UCC Financing Statement they’ll likely want to do all they can to maintain their priority position throughout the life of the loan. Lien-monitoring programs offer a great way for a secured party to keep a watchful eye on other lien-holder activity against their debtor.

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.



Leave a Reply