Business owners facing financial difficulties worry about losing their valuable assets. One significant concern is the potential for creditors to claim their real estate property through a Uniform Commercial Code (UCC) lien.
If you are an entrepreneur facing this issue, it is essential to understand the scope of creditors’ rights. To help you determine your next steps, let us examine the circumstances under which creditors can claim a real estate property through a UCC lien.
Specific collateral and blanket lien
If you defaulted on a loan, creditors may seize a real estate property if you put the property up as a specific collateral. This approach is one of the two ways a lender can recover debt. They can either claim specific pieces of collateral, like real estate or equipment, or file a blanket lien.
- If a creditor loans you capital in exchange for a specific collateral, it can only claim these assets to recoup its losses. Under this agreement, the lender may not go after any of your business assets aside from the collateral specified in the loan. This approach is common for special-purpose loans, such as inventory or equipment financing.
- Meanwhile, a blanket lien means a creditor can claim any of your business’s assets, including equipment, accounts receivables, vehicles and even inventory. If you default, a lender can sell any of the assets to cover its losses. It is common for standard bank loans and online loans.
The UCC filing that a creditor uses can depend on various factors, including the type of loan you took out and your company’s qualifications. If you are concerned that a creditor may seize your property, consider talking to a lawyer who can help you understand your options.
Know your rights as a business owner
A UCC lien can be an effective tool for creditors seeking to recover debts, but it’s not an automatic guarantee of claiming a business’s real estate property. By understanding the nuances of UCC liens and the legal framework surrounding them, business owners can take proactive steps to defend their interests.