Best Practices around Lien search

Products that help Customers obtain financial support for trade transactions on an open account basis include  Supply Chain Financing, Receivables Purchase/Discounting Facilities, and Silent Payment Guarantee issued to suppliers.  The common features of these products are:

  • Buyer owes account (payment obligation from sale of goods or services) to Seller.
  • Bank makes a payment to Seller in consideration for assignment of Buyer’s account to Bank.
  • Receivables (accounts) are assigned to Bank.
  • Bank takes the Buyer’s credit risk but has limited recourse to the Supplier in the event of nonpayment due to Buyer’s commercial dispute with the Supplier

Why UCC Article 9 is so critical here

In the U.S., the Uniform Commercial Code (UCC) governs private transactions including receivables – in different countries different regulations apply.  By allowing lenders to take a security interest on a collateral owned by a debtor's asset, the law provides lenders with a legal relief in case of default by the borrower. With such legal remedy available, lenders would therefore be able to lend capital at lower interest rates.  In all fifty states, article 9 of the Uniform Commercial Code (U.C.C.) governs secured transactions where security interests are taken.  Security interests are particularly valuable in bankruptcy, because creditors who have security interests in a bankrupt debtor's estate take precedence over creditors who lack such interests (unsecured creditors).

Best practices from recent UCC survey

In a recent survey of over 2,000 UCC professional conducted by Corporation Service Company (CSC) for insights on searching and filing practices on liens,  the two key findings centered on the Search Process and Monitoring after lending..  The poll focused on lenders, factors, and law firms that have a direct interest in receivable lending.   Most respondents worked for banks.

Search best practices

  • Failure to understand search logic may result in missing hidden liens.  Make sure you understand the various databases you search and the way their logic works.
  • Search more than just exact names in the process – but also search former names and the names of entities merged with or acquired by the debtor.

Remember, losing priority in the lien process can be just as bad as being unperfected.  During the search proves, a failure to understand search logic of a specific jurisdiction could result in hidden liens that may be fully effective.  If that is the case, you may be surprised to learn after the debtor defaults that you are subordinate to another claim.


  • Monitor your lien portfolio ongoing, not only at expiration.  Most lenders only do at expiration dates and do not have a systematic practice to monitor filed UCC records for changes to status.
  • Set up a system to track additional UCC records filed against the debtor by other secured parties.  You want to know where you stand.

All in all, good advice for those that want to protect themselves in this crazy world.

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