Auto Repair Shops: 6 Questions About MCA Debt and Repair Lien Rights

A merchant cash advance company may have their own lien on your shop’s receivables or assets, but in general that won’t trump your lien on a customer’s car, but only while the car is still in your possession. It’s worth looking closely at your state’s mechanic’s lien law to see how it works with auto repair shops. If the law doesn’t say otherwise, then the shop probably has the upper hand. The auto repair mechanic’s lien is most likely a possessory lien, so it lasts only as long as you keep the car.

A UCC-1 Is Not a Judgment

Read the papers carefully, all the way through, and look up any terms or phrases you don’t understand. A UCC-1 is not a judgment, or a court order. It is a public notice of a claimed interest in collateral. It does not levy money or impose a bank freeze. That doesn’t mean the collateral (your business’s assets, in this case) belongs to the funder or that the funder has the right to take it. A customer payment notice is not a court order, nor does it freeze accounts. It asks customers to pay a funder directly. Court papers or a bank restraint order are a whole different story, and it is urgent to review them carefully with a lawyer as soon as possible.

Knowing what the UCC-1 covers helps you plan an effective response. It may list receivables, equipment, or inventory as collateral. Some filings use very broad language, claiming a blanket lien on everything the business owns. An asset description, by itself, doesn’t mean the funder has a lien on the collateral. A UCC filed against a company is not proof that the funder has a lien against the owner’s home, for example, although the guarantee the owner gave does raise the question whether there could be a lien on the guarantor’s collateral if the guarantee includes it.

Finding the complete record may take a lot of digging. For example, if the UCC is filed against a company, then the filing uses the official legal business name, not the trade name. Save every page you find, including all the amendments, assignments, continuations, and terminations. If more than one funder is involved, you need to get the agreement and the filing for each one. Also be aware that even if the funder’s filings are perfect, that doesn’t settle who has priority among funders.

The funder may be claiming the right to receive payments owed to you for repairs made on your customers’ cars. It’s an operational problem even while the question is still being fought out. Do not tell the customers to ignore the letter. That may seem like the obvious reaction, but not this time, because the funder may now have a contractual right to receive that payment, at least for a time. For now, keep the notice and the invoices with the disputed payments, and have counsel review the situation. Also look at the shop’s contract with the funder, to see what the funder says about payments from customers.

Your repair lien is leverage for you, but you don’t get to keep it forever. In California, it starts when you give a written statement of the charges, or 15 days after you finish the work, whichever comes first, and for owner-approved work, it is lost unless you apply for a lien sale or sue on it within 30 days.

Sometimes the problem with the lien isn’t the funder, it’s the transaction. In California, if someone other than the legal owner orders the repair, the part of the lien above $1,500 is invalid without written notice to and consent from the legal owner before the work is done. In Texas you can’t have a public sale until the 31st day after the notice is filed with the county tax assessor-collector, and you have to pay a $25 fee, and a shop that doesn’t put the customer’s signed work order in its notice loses the ability to have lien priority over the title lienholder, unless it is a franchised dealer.

Some merchant cash advance contracts have a confession of judgment, where the signer agrees in advance that the funder can go straight to the clerk of the court and have it entered as a judgment. But some states have rules that affect what this means. In Texas, HB 700, in effect since September 1, 2025, makes confessions of judgment void in “sales-based financing” agreements, and imposes a civil penalty of $10,000 per violation. In New York, it’s only good for three years, and the funder can only go to the court in the county where the business is located.

UCC Filing

The initial UCC filing often lasts for five years, but not in every state, and a continuation statement needs to be filed on time to keep it from expiring. Don’t guess, look it up. Even if the filing expires, that doesn’t mean that the debt is erased or that the funder has given up collecting it.

Before agreeing to a settlement, get clear on which UCC filings are to be released, by whom and when, whether customer notices are cancelled and when, and what is released by the agreement, especially who and what releases guarantors may need. Make sure to understand what happens if the business misses a settlement payment. It’s not just a handshake: this is a legal agreement, and it has to be right.

Keep in mind that filing a UCC-3 termination does not erase the filing’s history; it only terminates its current effect. A shop should not file a UCC-3 itself without legal authority.