What a UCC Lien Does

August 13, 2023


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. In most states, a UCC 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. Because they are cheap (however alone will rarely will cause a judgment debtor to pay you), the first thing you should do is get a UCC lien on your debtor. You can do this at the same time you record other more powerful liens or do other judgment enforcement actions.

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

A UCC lien covers business property, but it also covers some kinds of personal property, and may also have some “long shot” advantages.

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

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

1) Accounts Receivable (If you can prove what someone owes your judgment 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 UCC lien. You may get paid when the business is sold or financed. If your debtor is rich and owns an aircraft, register the UCC lien with the FAA in Omaha, and for large boats, register the UCC lien with the Coast Guard.

California’s 697.510 says: (a) A judgment lien on personal property described in Section 697.530 is created by filing a notice of judgment lien in the office of the Secretary of State pursuant to this article. What is meant by “personal property”? See the definition for the EJL, at California’s CCP 680.290 which says “Personal property” includes both tangible and intangible personal property.

Any vehicles or vessels registered with the DMV are specifically excluded from a JL-1 lien, see 697.530. By filing your UCC judgment lien before the debtor registers their vehicle with the DMV, you may be able to avoid that. If the lien is down for 90 days, it protects personal funds and other property that you have seized from the judgment debtor. Your lien may be superior to a bankruptcy trustee’s lien.

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 a UCC 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 UCC 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 UCC lien.)

In California, usually, a court-scheduled debtor exam (called an Order for EXamination – OEX, or a Judgment Debtor Examination – JDX) lien, when personally served on the judgment 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 your 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 a UCC 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. A UCC lien can be renewed before it expires, and will have the same priority as the first UCC lien date.

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 UCC lien because the debtor took a loan with the bank.

Many Secretary Of State (SOS) office no longer offer counter service any more. They have a drop off box, and you can pay them (e.g.) $5 to fax the information to you. Make sure to include your fax number in the requestor information area. Often, you can request a statement of information over the counter for viewing purposes only. They do allow individuals to take a picture of the statement of information or any other documents regardless of whether or not certified documents are ordered. Also available for viewing are the articles of incorporation on both microfiche or paper. The SOS will not let you take sample copies with you. They require that you order certified or non-certified copies and wait the 5-7 days or longer it takes to pick them up or mail them out.

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 the customers to pay you, instead of the debtor.

UCC liens/JL1 liens almost never attach to bank accounts. The only way to establish that sort of priority on bank funds is through a deposit account control agreement. See Commercial codes 9301, 9314 and 9332. Also, UCC liens to not attach to vehicles registered with the DMV as per Californa CCP 697.530(d)(1). Vehicle liens are kept at the DMV. Instead have the debtor served with a judgment debtor examination (CCP 708.110 -D) which does attach to vehicles the debtor owns for 1 year.

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

Sometimes you need to order UCC records to prove a relationship between a debtor and a corporation, or for some other reason. Order certified copies from the Secretary of State. Most of the time, the cost is reasonable. Use the agency’s preprinted order forms, and order certified copies of what you need.

In California, it is often better to deal with the Secretary Of State by mail. The SOS office here in California makes you wait in a line, and a clerk finally asks you what you want. At the counter, the offer only a few options such as a status report (active, suspended, merged out, etc.) and a list of officers (for corporations) or a list of members (for LLCs).

In person, the California SOS will not let you keep any printouts or make a copy, you must write the information down yourself. How obsolete!

In California, you should request things by mail because they are fast and don’t charge you the extra $10 in person fee. Send them a (e.g.) “not to exceed $100.00” check. More information is on the PDF at: www.sos.ca.gov/business-programs/business-entities/forms and processing times are shown at: http://www.sos.ca.gov/business-programs/business-entities/processing-times

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