UCC-1 financing statement

What it is

A UCC-1 financing statement is how a secured creditor tells the world it has a claim on someone’s personal property. New York filings are made with the Department of State, which describes the form as one that gives “notice that a creditor has or may have an interest in the personal property of a debtor.”^[1]

“Personal property” here means the business’s movable assets — equipment, vehicles, inventory, accounts receivable, sometimes everything the entity owns under a blanket lien. It does not mean real estate, which is recorded at the county level instead.

Why a buyer searches for it

Because a lien attaches to the asset, not to the seller’s good intentions. If the seller financed a $60,000 walk-in cooler and the lender filed a UCC-1 against it, that cooler is collateral until the loan is paid. Buy the assets without clearing it and you can find a secured creditor with a superior claim to something you believe you own.

The search itself is nearly free. The Department of State runs an online UCC and lien search that can be run by debtor name, by filing number, or by secured party.^[1] Run it before you spend money on anything else.

How to search properly

• Use the exact legal name, not the trading name. UCC indexing is unforgiving. “Joe’s Pizza” finds nothing if the entity is “JRC Hospitality Group LLC.” Pull the exact registered name from the Department of State entity database first.^[2]
• Search every name the business has used. Prior legal names, merged predecessors, and any assumed name filings. The entity database shows name-change history.
• Search the seller personally where the seller is a sole proprietor — the debtor is then the individual, not a company.
• Re-run the search close to closing. A search two months old is a search of a different business.

What a hit means — and what it does not

A live UCC-1 is not automatically a problem. Most operating businesses carry equipment finance. What matters is what happens to it at closing:

• Paid off and terminated at closing. The usual answer. The debt is paid from the seller’s proceeds and the secured party files a termination statement. Your attorney should see the payoff letter, not a promise.
• Assumed by you. Sometimes sensible for equipment you want on terms better than you could get today. It has to come out of the purchase price, and the lender has to consent.
• Stale. A filing whose underlying debt was repaid years ago but which nobody terminated. Harmless in substance, but it clouds title and your own lender will want it cleared.
• A blanket lien you did not know about. The one that stops a closing — typically a merchant cash advance or a line of credit secured against all assets.

The UCC search is one strand of a wider lien picture. Unpaid New York sales tax travels differently: it can reach a buyer through successor liability whether or not anything was ever filed against the assets, which is what the bulk-sale notice exists to prevent.^[3]

Where it belongs in your deal

Put the search in the letter of intent as a diligence item and put “all liens released or terminated at closing, evidenced by payoff letters and filed terminations” in the closing conditions. It is a cheap search that occasionally saves a deal, and an expensive discovery if you run it late.