How to Remove a UCC Filing: 5 Steps From Account Review to Authorized Termination

As a business owner, you’ve probably had to deal with plenty of new and unexpected challenges when it comes to business financing. One of those might be a UCC-1 financing statement. When the initial loan is paid back, the collateral lien doesn’t simply disappear. It’s important to promptly request that it be terminated. Terminating a UCC filing is as important as paying off the debt. Failing to properly terminate a UCC filing could prevent your business from getting access to essential funding in the future.

A UCC-3 is filed to terminate a UCC-1 financing statement. Terminating a UCC filing correctly involves several steps, from checking what is actually out there to getting the lender to confirm there’s nothing outstanding, and making sure everything is out of the public records. Start by finding any and every filing that might exist, and make sure you have an accurate account of what they mean. If there is anything outstanding, negotiate a UCC-3 into the deal; if not, demand one. File it if the lender ignores you, and recheck the record.

UCC Filing Search

UCC liens are normally filed in the state where your business is registered. You’ll need to conduct a UCC filing search in that state to find out what exists. The lender doesn’t always draw your attention to the existence of a UCC filing. While you may have an idea of what filings exist in your name, your idea may be either incomplete or incorrect. Don’t just rely on your own memory or records.

Exactly what each filing says varies, but generally the filing should disclose the company’s name, what the collateral is, and whether the creditor has a blanket lien or one only on specific property or assets. Lenders often put in statements like, “Collateral is all assets of company X” instead of specifying which assets are subject to the lien and which are not. A UCC filing generally stays on the record for 5 years unless the lien is renewed or otherwise shortened.

Whoever Is Listed as the Secured Party

The UCC filing may list a secured party’s name instead of the lender’s name. Whoever is listed as the secured party is the one you need to talk to. Ask for an accounting of what they claim remains unpaid, and be sure it’s done in writing and signed. The lender should respond within 14 days. You are legally entitled to one free copy every six months, but the lender can charge up to $25 thereafter. Once you have an accounting of the debts that the filing claims are still outstanding, compare this to your records of what you paid and what you still owe. If the accounting is wrong, try to resolve it as part of your negotiation to terminate the UCC filing.

You probably don’t want to pay off the debt if the lender isn’t willing to take the collateral out from under the lien. You’d have to pay off the secured debt, while your access to funds from other sources, like a different lender, would be impaired by the continued existence of the lien. Thus, when the debt is being paid off, you should make the filing of a UCC-3 a condition of any final payment. A UCC-3 can even be signed in advance, with a specified date of release that corresponds to the payment of the debt. However, don’t pay off a debt under the belief that the UCC will automatically be terminated. Insist on a UCC-3 being provided.

If the debt is already paid but the UCC hasn’t been lifted, send a demand letter to the secured party as listed on the UCC filing. Demand that the secured party file a UCC-3 to terminate the filing. Demand it within 20 days. The letter should be sent certified mail to the secured party at the address listed on the original filing. When demanding a UCC-3, be sure to include the file number and filing date, point out that nothing is owed and no further advances are promised, and indicate that the secured party has 20 days from receipt to either file a UCC-3 or send you one.

If your debt is a merchant cash advance (MCA), note that an MCA transaction is slightly different from a loan. Technically, a MCA provider purchases your business’s accounts receivable instead of extending a loan. Purchases of accounts are excepted from the 20-day regulation. Some funders use that to put off complying. It’s wise to plan for this possibility. When it’s time to make payment in full, then, add a UCC-3 filing as part of the final negotiation and settlement. That UCC-3 filing should be a requirement, not merely an afterthought.

If the secured party hasn’t filed a UCC-3 after the 20 days, it’s time to submit one yourself. The form must state that the debtor (i.e. your company) authorized it. A wrongly authorized termination can create its own liability, so it’s a good idea to have an attorney draft it. If the secured party (i.e., creditor) doesn’t comply with your request, they can be required to pay a penalty of $500 plus actual damages such as the cost of further financing that you may have paid for as a result.

If the secured party has filed a UCC financing statement which, according to your understanding, is either invalid or incorrect, you are entitled to file an Information Statement disputing it. This doesn’t invalidate the filing itself, but it makes note of the dispute.

Search the Filing Records Again

After you’ve submitted a UCC-3 or demanded that one be submitted, wait about 30 days and search the filing records again to make sure the UCC-1 has indeed been terminated. That way, you know everything that’s supposed to be done has actually been done. When a UCC-3 is filed, the public record is changed to reflect the fact that the financing statement is no longer valid.