How to File a Lien Against a Business: 6 Kinds of Lien and What Each Requires First

Kinds of Lien

There are a whole bunch of liens you can create, but you can’t just walk into City Hall, pay a fee, and file a lien on someone who owes you. There are at least six kinds of lien you might come across. A security interest needs a contract. You can’t just put it on - somebody has to agree. Some come after work done on particular property. And for some, you have to get a judgment. And of course the IRS gets its own category.

One common kind of lien, which lawyers would call a security interest, you can’t do unless you and the business agree. Without that agreement, the UCC-1 would be fraudulent. That thing is called a financing statement, and it has to go through all the right paperwork with the right information filled out. Or else it’s not really a lien - it’s a piece of paper some goofball spent money on.

For a security interest in personal property under Article 9 of the UCC, the financing statement that gets filed has to be accurate. It has to have the debtor’s exact legal name, the secured party’s name, and the collateral has to be described accurately. A financing statement also has to match the name on the business’ organization papers to the letter. You have to file them in the state where the business was organized. Once a UCC-1 is filed, it lasts for five years. A continuation can be filed within six months of expiration. Each filing might cost from five to fifty dollars. And don’t forget to file the lien termination when the debtor pays off the debt.

Some people complain when a bank puts a lien on their property or car. But they signed a security agreement, which gave the lender permission to do that. If the business uses a trade name or a DBA, the financing statement has to use the legal name, not the DBA. Lien on real estate can be granted, but it’s usually handled by a deed of trust or mortgage. A lien on a car often needs to be filed on the car’s title.

For a judgment lien, you have to sue and win a judgment before you can file your lien. When you win, a California clerk will provide an Abstract of Judgment for a fee, which is about 25 dollars. You have to take it to the county recorder. This starts a lien on all real estate property owned by the debtor in that county. Once you have that judgment, you can file it in counties where you believe there is property to attach. A judgment lien doesn’t automatically grab the business’s accounts receivable, equipment, and inventory; California Form JL-1 has to be filed with the Secretary of State. You can do it online for five dollars. The lien lasts five years.

Another kind is a mechanic’s lien. That’s a statutory lien. It’s a way people who work on a house and don’t get paid can file a lien. It needs no agreement or consent by the business. Notice comes before the lien. Subcontractors and suppliers have to serve a Preliminary Notice within 20 days of starting work. Direct contractors and wage earners are exempt from that requirement. The lien has to be recorded within ninety days of the work’s completion. The foreclosure suit has to be brought within ninety days of recording the lien.

Federal construction jobs don’t allow the usual lien stuff. Instead, there is a bond, called a Miller Act payment bond. And there are deadlines. First, the supplier has to send a written notice to the prime contractor within ninety days of the last supply. Then the supplier can sue for payment within a year.

What about federal tax debts? There is no self-help on this. Even for the IRS, the law requires an assessment, a Notice and Demand for Payment, and failure to pay to create the lien. Not paying taxes doesn’t automatically give the IRS the best claim. The tax lien doesn’t beat buyers and banks, contractors, and judgment creditors unless and until the IRS files its Notice of Federal Tax Lien. The IRS will release the lien within 30 days after the debt is paid.

UCC Liens Can Be Searched

UCC searches should come first. Since you don’t know what names the business might have used, search by business name and by the names of the people who were involved in the business. You want to avoid putting your money and time into filing a lien behind another, better lien. In most states, UCC liens can be searched on the Secretary of State’s website. Keep track of all deadlines. File timely, or nothing happens.