You may be surprised at what is in on record with your secretary of state. We have a client in California that recently came up for its annual renewal of our agreement. As part of the renewal we did our standard check to make sure nobody else had filed UCCs on the firm’s accounts receivable. That routine check turned up a $2 million lien against the law firm! It was filed by a disgruntled former client of the firm.
This individual had logged on to the California Secretary of State’s website and created a fictitious UCC filing against the law firm for $2 million. The firm didn’t know it was there until we checked and let them know about it. I’m not sure they would have known until they had to go find some other financing and it could have potentially blown a deal for them. Because the firm had never granted a security interest to the filer of the UCC, the UCC was worthless, but it still raised a red flag during the renewal process and could have delayed any new transactions that the law firm had been seeking.
So it’s important to monitor liens filed on you and your law firm. It only takes a few moments to check UCC filings using LexisNexis® or Westlaw®. This is another good annual exercise. Even if you see the UCCs filed that you expect, such as from your current lenders, look closely at the description of collateral in the filings. It is very common for a borrower to think their line of credit is secured by their real estate but for the lender to actually file on the firm’s accounts receivable or even all the assets of the firm. Again, this can cause costly delays when applying for or renewing loans or leases and it costs nothing to monitor.
Sign up for the email newsletter to receive author news and information about our new and forthcoming titles.
*The views expressed in this book are not necessarily representative of the views held by AAJ. Furthermore, the donation of profits from the sales of the books to the Seventh Amendment Fund does not imply that AAJ has endorsed Advocate Capital, Inc. or the book and the views and information contained therein.