UCC-3 Termination Demand Letter: Template and New York’s Conditional 20 Day Rule

You’ve paid, but the lender hasn’t filed the UCC-3 which cancels the lien. The mistake many people make is to think the lender will take care of that. It sometimes happens. So when does the lender have to remove the lien after the loan is paid? In New York, within 20 days of receiving the borrower’s notice. But for the clock to start, the lender must be on notice and must receive from you a written demand, in proper form, to follow the law. Only after receiving your request, if the financing is fully paid off, and the relationship ends with no further commitment to lend, the clock on the termination statement begins. The lender’s financing statement is not terminated automatically. If you did all this and the lender does not file within 20 days, file the UCC-3 yourself.

This business collateral lien law is not meant for individuals who buy consumer goods. Lenders have one month to pull their plug on collateral for a consumer, but notice is not required. Businesses have more burden. The lender has a duty to act only after getting your signed demand, and then only if nothing is owed and no further commitment to lend remains, or if it turns out you never authorized the filing. But once 20 days have passed after the demand is received, either you or the creditor can terminate.

Collateral Lien Termination Request

Before asking the lender to terminate its filing, confirm that no debt is owed, because a lender need not act while it has a claim. Get an accounting. The lender must respond in 14 days. You will pay to learn the name on the filing, who’s on notice, and who gets your written demand. UCC-1 searches can cost $25 per name. Once the lien is found, the UCC-1 file number will be shown, allowing you to cancel the lien with a UCC-3 if warranted.

This is how you send a collateral lien termination request: the letter must be signed, addressed to the secured party shown on the UCC-1, and sent to the address shown there. A certified-mail receipt proves delivery. The key is to send the demand to the secured party as shown on the financing statement, and not merely to the lender. Get a copy of the original financing statement and enclose it. This is a legal document so be formal, typed and signed. A template:

Re: Notice and Demand to Terminate Financing Statement and Lien, File No. [number]. Dear Sir or Madam: This letter is a request for a termination statement with respect to UCC filing Number [number], as per New York law. As of [date], all indebtedness has been paid and the obligation has been performed, and no commitment to make advances, incur obligations, or otherwise give value remains secured by the filing. Attached please find a copy of the filed financing statement. Please file the termination statement promptly within 20 days of your receipt, or send one to me for filing. If the termination is not filed within 20 days from receipt of this letter, I will terminate the lien myself under law. Sincerely, [signature, name, title, business name].

File an Effective Lien Termination

You can file it yourself, so long as 20 days have passed since the written demand was received. No lender signature is needed to file an effective lien termination. The form must state that the debtor authorized it. The UCC-1 file number goes in Item 1a on an Amendment form, and box 2 is checked for termination. Errors or omissions can cause the state agency to reject the UCC-3, resulting in the collateral lien continuing. File it in the same office that has the financing statement. Online, New York charges $20.

If you’ve had several lenders in on a loan, and want to discharge collateral in New York, you may not get a full discharge by getting just one lender to sign off. To be effective and terminate the entire lien, the termination request and UCC-3 must name all secured parties on the original financing statement. If any secured parties are left out, part of the lien might stay in effect.

Liability for Damages

A creditor that fails to act on a written demand violates the law. A lender who ignores your letter runs the risk of liability for damages caused by not cancelling promptly. If the lender tries to pull a fast one by not terminating after the 20 days, you can recover your actual losses, plus $500 compensation. The statute calls for damages resulting from your inability to obtain credit. You may have an injury from being charged higher rates.

Once the termination statement is filed, or you file the UCC-3 yourself, the financing statement stops being effective. But recording just a document called a UCC-5 or a correction statement does not remove the filing. Credit is lifeblood for your business. Sometimes all a business needs to grow is a break and a new loan. Remove the lien and you restore borrowing power.