Why do blanket liens matter
I realize this post looks like the beginning of a nap, but..hang in there. You won’t regret it. It’s good info if this is the question you wonder about or discuss with others.
Blanket liens are frequently questioned. For instance…
- Are they really relevant to the equipment when they don’t list any specific equipment?
- Will a release be filed or how do I know they released the equipment I am paying for?
- Why contact if the owner is selling in the ordinary course of business?
- If a different creditor has terminated their lien, do I still needs a release from the blanket lien holder?
- If there are multiple blanket liens filed by the same creditor how many releases do I need?
Blanket liens are always relevant. They involve all of the equipment or assets of a business. Because equipment does turn over in a business it would be time-consuming and expensive if the lien was amended each time the collateral list was amended. The lien search cost would be ridiculous to retrieve for almost any company whether dealer, construction company, or contractor.
In most cases, you will not receive an actual release of lien in the form of a UCC but you should receive a statement from the creditor on their letterhead stating the creditor has no interest in the specified * equipment or the proceeds from the sale of that equipment* – specified by year, make model, and serial number. If the equipment list is not correct, send it back until it is right. The creditor wants their collateral list as accurate as you want your release!
The letter will state the owner of the equipment as is on their books. Make sure this is the name on the bill of sale and not someone else’s name. It is not legal to sell another’s equipment even if that person owns the company. The legal owner is the legal seller. Period.
Why contact the blanket lienholder if the equipment is being sold in the ordinary course of business? Because your primary job is to protect your business. Flat out. If the guy you have done business with for years has a problem with his creditor being contacted, you should start asking more questions. The only one who truly knows if it is ordinary is the seller. The buyer and banker are the last to know if someone is in financial trouble.
Liens are filed in order of relevance. In general, blanket liens are the oldest. Once the creditor for the lien showing the equipment listed specifically has been contacted, the blanket lienholder gets to check their collateral and make sure they do not need a portion of the proceeds.
If a lienholder has multiple liens filed that read like blanket liens (i.e.: “including but not limited to…” ) they can produce a statement on their letterhead that they do not have interest in the equipment you are interested in purchasing/brokering/etc.
Anytime you receive a statement from a creditor where they need funds to release their interest, you should pay that creditor directly. You will receive a release on interest once the payment has been received or processed. Any remaining funds, after any pertinent creditors have signed off, can go to the owner/seller.
Another good reason that blanket liens matter is 2008. Remember 2008? How about 2009? Remember going to the bank with a check for equipment you sold to apply it to your line of credit as was your normal course of business? And then the banker called you and said they needed $20K more to release their interest. They were lowering the lines of credit and you no longer had wiggle room to rearrange collateral against the amount owed. But the equipment was sold and there wasn’t an extra $20K for the release. You would have known that ahead of the sale if the blanket lienholder would have been contacted – even though it was in your normal course of business. There was a new normal on the way. Your banker and you need to be in communication about what you both consider “normal”.
If we can answer any questions or help you with the lien search side of your business, we would love to hear from you.