How to Perform UCC Checks on Auction Sellers

1. Introduction

When auctioneers are contracted to sell assets, it is critical to confirm that these assets are not encumbered by any existing security interests. In the United States, creditors typically record security interests through Uniform Commercial Code (UCC) filings. This document provides auctioneers with a state-agnostic approach to researching UCC liens, handling blanket loans, understanding the order of liens, and other best practices.

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2. Why Check for UCC Filings?

• Legal Liability: Selling encumbered assets without settling existing liens can expose auctioneers and sellers to legal disputes.
• Buyer Confidence: Buyers want assurance that the assets they purchase are free of undisclosed liens.
• Reputation: Ensuring lien-free assets maintains trust and protects the professional reputation of the auctioneer.

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3. How to Conduct a UCC Search

1. Identify the Correct Debtor Name

   • Obtain the exact legal name of the individual or business (including suffixes like “LLC,” “Inc.,” or “Jr.”).
   • Check for other known names, DBAs (Doing Business As), or aliases.

2. Locate Your State’s UCC Filing Office

   • Most states manage UCC records through the Secretary of State or a similarly designated office.
   • Many states offer online search portals; some require a fee for detailed results.

3. Run the Search

   • Select “Individual Debtor Name” or “Organization Debtor Name,” as appropriate.
   • Input the name precisely and review all returned filings.

4. Review Filing Details

   • Confirm the debtor is the same party you are conducting business with (address, organizational info, etc.).
   • Check the Collateral Description to see if it includes the type of assets being sold.

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4. Handling Blanket Loans

• Definition: A blanket loan or blanket UCC filing is a security agreement covering “all assets” or “all personal property” of a debtor.
• Implication for Auctioneers:
  1. Identify Scope: If the UCC statement includes all assets, the auction items may be subject to the lien.
  2. Obtain Lien Release or Written Consent: Work with the debtor and secured party to confirm whether the collateral has been released or if the creditor consents to the sale.
  3. Consult Legal Counsel if Uncertain: If the filing is unclear, legal guidance can help avoid liability.

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5. Order of UCC Filings (Lien Priority)

• First In, First Out: Generally, the first secured party to file a UCC has priority over subsequently filed liens on the same collateral.
• Significance for Auctions:
  1. Multiple Liens: If multiple lenders have UCCs, understand which lender has the first right of claim.
  2. Potential Payouts: Proceeds from an auction may need to satisfy the highest-priority lien first. If funds remain, subsequent liens may then be satisfied in order.

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6. Titled Assets

• Vehicles, Trailers, Boats, and Equipment:
  • Liens for titled assets are typically recorded on the physical title or with the department of motor vehicles (or similar agency).
  • Titled assets are usually excluded from UCC filings because they have their own lien recording systems.
• Best Practice: Always check the title status separately for vehicles or other titled property to confirm any existing liens.

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7. Tips & Best Practices for Auctioneers

1. Obtain a Complete Asset List: Request a written list of assets intended for sale from the seller.
2. Verify Liens Early: Conduct UCC and title searches as soon as possible to avoid last-minute surprises.
3. Document Everything:
   • Keep copies of all search results, lien releases, and correspondence with secured parties.
   • Maintain a paper trail to demonstrate due diligence.
4. Communicate with the Seller: Ask sellers to disclose any known liens or security interests.
5. Check Expiration or Termination: Some UCC filings may have expired or been terminated. Confirm the current status to see if the lien is still active.
6. Seek Professional Guidance: If there’s any doubt about a filing’s implications, consult an attorney or the secured party directly.

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8. Summary

• UCC Searches: A crucial step for auctioneers to ensure assets are free and clear.
• Blanket Loans: Confirm if all assets are encumbered; secure releases or permission to sell.
• Order of UCCs: Priority matters—liens filed first generally have the strongest claim on proceeds.
• Titled Assets: Typically excluded from UCC filings; check titles separately for liens.
• Best Practices: Verify, document, and communicate with sellers and secured parties to protect both your business and buyers.

By following these guidelines—confirming asset ownership, checking UCC databases, understanding blanket liens, and verifying titled assets—auctioneers can confidently conduct sales while minimizing legal risks and preserving their professional reputation.