UCC Liens and UCC Judgment Liens

UCC Liens and UCC Judgment Liens

I am a Judgment Broker, not a lawyer, and this article is my opinion, please see a lawyer if you need legal advice.

A UCC (Uniform Commercial Code) lien, either is a general or a specific lien on most business property, and certain kinds of personal property. This lien does not cover real estate property. (Real estate requires a different kind of lien, such as an abstract of judgment, recorded at the county recorder where the property is located.)

A UCC lien can be voluntary, for example, as a condition to getting something financed, or as condition to fulfilling a business contract or obligation.

UCC liens can also be involuntary, for example, when a judgment owner records a lien against both most business property, and some types of the debtor's personal property.

This lien covers business property, but it also covers some kinds of personal property, and may also have some "long shot" advantages.

In California, the UCC lien is called a JL-1, and CCP 697.510-697.670 specifies the types of personal property liened as:

1) Accounts Receivable (If you can prove what someone owes the debtor.)

2) Chattel Paper (Legal papers proving secured ownership of something.)

3) Equipment (Excluding vehicles and vessels registered with the DMV, and Mobile homed or commercial coach registered under Health and Safety Code.)

4) Farm Products.

5) Inventory (Durable goods held for sale by retail merchant with unit value greater than $500 or other inventory that is not held by a retail merchant for sale.)

6) Negotiable Documents of Title (Any written instrument, such as a bill of lading, a warehouse receipt, or an order for the delivery of goods.)

If your debtor owns or is a business, always record a UCC lien. If you know the business assets of the debtor, write them down on the lien. You may get paid when the business is sold or financed. If your debtor is rich and owns an aircraft, register the lien with the FAA in Omaha, and for large boats, register the lien with the Coast Guard.

Most debtors do not own a business, and most do not have much of the kind of personal property that UCC liens cover. However, there are several reasons to consider recording this lien on an average (non-business) judgment debtor:

1) The UCC lien is very easy and cheap, and it costs just $10 and one stamp in California. Recording a UCC lien might annoy, notice, or intimidate some debtors.

2) The lien might get the attention of a lender when the debtor tries to get financing or borrow money.

3) Most UCC liens last five years (they can usually be extended within six months of expiration) and recording one might give you a secured status if the debtor files for bankruptcy (and has assets).

Like most other liens in bankruptcy court, a UCC lien is only a piece of paper unless you can identify and locate specific property encumbered by the lien. (This is why you should write down any known assets of the debtor on the lien.)

UCC liens are obtained from a Secretary Of State (SOS), and each state's SOS is different. It's a good idea to look up and read the laws of your state about personal property liens. Then find your state's SOS office. A good guide to all SOS offices can be found at http://www.coordinatedlegal.com/SecretaryOfState.html

Usually, a court-scheduled debtor exam (called an Order for EXamination - OEX, or a Judgment Debtor Examination - JDX) lien, when personally served on the debtor, is a far better lien on personal property.

OEX/JDX liens are more comprehensive and provide better security as they apply to all non-exempt property of the debtor. Most OEX/JDX liens are only good for one year, but they can be extended with a motion filed before their expiration for good cause. (Or, you can serve the debtor every year with a new OEX/JDX, renewing the lien.

4) If your judgment debtor is lucky enough to win even $500 in the lottery, the Lottery Commission will look at all UCC liens, to determine if the winner owes money. If they do, they will pay the creditors in full before they pay the judgment debtor a single penny.

To record this lien, get the form from the Secretary Of State where your debtor has or may have assets. Complete the form, filling out all the information required, e.g., name of debtor, amount of judgment, etc. Mail it with a check, often $10. When you get the form back, mail a copy of it to the debtor. There is no need to record a UCC lien at the County Recorder.

Existing UCC liens can be used to find clues to debtor's assets. UCC do not usually show bank accounts, unless a bank has a lien for a loan for equipment. Sometimes business debtors will have a bank lien because the debtor took a loan with the bank.

Usually, a UCC lien is not a direct way to get money from the debtor. For example, one would record liens, including the UCC, to lien the debtor's computer equipment. To actually collect, you may have to find out who the business does work for, and get an assignment order for their customers to pay you, instead of the debtor.

When the judgment debt is satisfied, make sure to release the lien, and mail a copy of the UCC lien release to the debtor.