How to Get a UCC Lien Release: 6 Steps When the Lender Will Not File the UCC-3

Paying off the loan doesn’t mean removing the UCC lien. For business assets, the lender has no duty to terminate the lien until you send a signed written demand under UCC 9-513. Once it receives the letter, the lender then has 20 days to file the UCC-3 termination or send it to you. If it does nothing, you can usually file it yourself. A lender that ignores the demand can owe $500 plus actual damages.

This problem often surfaces much later when you try to borrow money. The bank will run the credit report and the UCC search, see that the old loan is still outstanding, and you may get a smaller loan, or a higher rate, or a no.

A Zero Balance

First, make sure the loan has a zero balance. Ask your lender to send you a payoff letter if you don’t already have a receipt that says the loan is paid in full. Ask for a letter or something on paper that says ”paid in full,” not “no longer active” or “does not appear on the borrower’s account.” A commitment to lend more money can leave the UCC lien in place. If you are unsure of the balance, ask for a letter from the lender that states the amount you owe as of a certain date; the lender must answer in 14 days.

If you’ve made sure that the balance on the loan is zero, write the lender a letter asking it to file a UCC-3 termination with the filing office. Give them the UCC-1 filing date and number if you have them. Some lenders routinely do this. Some lenders will do this even if you don’t specifically ask. Some need to be reminded. Follow up until you get confirmation.

A Signed Written Demand

If the finance company drags its feet, the next step is sending a signed written demand. You have to do this in a special way, with a very formal looking letter. Send the letter to the name and address on the financing statement, not just the post office box or wherever you sent your payments. Enclose a copy of the UCC-1. Send the demand letter by certified mail with a return receipt. The return receipt date starts the 20-day clock. Keep the postal return receipt too. The key is to make sure that the lender actually has the letter, and to show that you gave it 20 days to do the work.

If nothing comes back from the lender after 20 days, you can usually file the UCC-3 termination yourself. Choose “termination” for “kind of amendment.” Put the original filing date and file number in the correct blanks. Mark that you, the debtor, authorized the filing. You file the UCC-3 with the same office that holds the original UCC-1. For most businesses, UCC-3s are filed with the state where the business is organized, through the Secretary of State. For loans involving fixtures, you file the UCC-3 in the county recorder’s office. Check online; some states let you do this easily.

Some states follow the UCC 9-513 language closely, and will let you file UCC-3’s yourself. Others require the creditor to do something or need you to get a court order. So keep your receipt showing that the debt is paid. Have proof that you sent a proper demand, with a return receipt.

A lender who ignores your UCC-3 demand can be on the hook for your actual damages if they blow it off. They can owe you $500 as a penalty for not doing the work. You may be able to get the lender to pay you the extra interest you paid because of the lien if it makes your loan rates higher. Lenders can lose money, but only if you push for it.

Last, check the online filing records on the state’s website, and print out the page that shows the lien was terminated. The old filing might still show up, but it will be marked as terminated. Keep a copy of the UCC-3 for your records. Remember that business credit reports can take weeks to update. You may want to send proof of the termination to lenders to avoid needless questions.

If the lender is out of business and was a bank, try the FDIC’s BankFind website, which might show who took over its assets and liabilities. The party listed there is the one to contact. If it was not a bank, you may be able to file a UCC-3 yourself with proof that the company is out of business. Because the laws aren’t clear everywhere, you may want to talk with a commercial attorney.

A filing in error is different. You cannot “fix” this situation by filing a UCC-3 termination yourself and thinking you’re done. You can file a correction or information statement to note your dispute, but it does not remove the filing. You may need the filer to withdraw it, or you may need a court order.

You can do nothing and wait for the UCC-1 to lapse. But do you want to wait five years, and maybe longer if the lender renews the filing? Not with lenders and equipment buyers with itchy trigger fingers. A stale UCC lien can limit the amount you can borrow in the future. Until it’s gone, it can scare off business buyers.