UCC liens which are legally known as UCC-1 liens or financing statements give legal priority to creditors over assets and establish an order in case there are multiple creditors attempting to collect on the same debt. They are primarily seen and used in business debt and financing cases. Although UCC liens have been commonly used in business financing matters, they have recently become notorious because of Merchant Cash Advance lending matters. MCA creditors frequently use UCC liens to levy a debtor’s business and personal assets and or property. UCC liens are primarily being used to levy online financial platforms such as PayPal, Venmo, and CashApp, merchant processors such as Square, Stripe, and Intuit as well as other financial online platforms. MCA creditors send UCC liens to platforms such as Amazon, Turo, and Airbnb if business is done on those platforms so the debtor’s assets or revenue that is due to the business can be frozen. The creditors also send UCC liens to insurance companies in the case of medical businesses such as doctors or treatment centers who bill insurance so that the incoming revenue can be frozen as well. Construction companies, contractors and trucking companies are the most common businesses associated with MCA financing that we encounter. These companies’ clients and vendors frequently receive UCC liens asking for any funds owed to them to be levied and even sent to the MCA creditor as well. We have even encountered MCA creditors sending liens to the regular clients of other small businesses such as restaurants, farmers and landscapers.
Merchant Cash Advance creditors have been using UCC liens as the equivalent of money judgments without having to actually obtain one. This allows them to avoid costly litigation and still effectively levy assets and property so that they place the business debtor into a very difficult position, cutting off their revenue stream. However, we believe that this is an improper use of these UCC liens. These liens are intended to be used for priority purposes so that creditors know who is first in line to collect if a debtor enters into a bankruptcy or if multiple creditors each have a judgment to enforce against the same debtor. However, a lawsuit is still necessary in order to obtain a judgment that would then permit the creditor to enforce against assets and property. A traditional judgment allows the MCA creditors to levy a bank account which UCC liens do not accomplish thankfully. It also allows them to place liens on real property and other assets. The use of UCC liens to enforce against assets significantly decreases the need to obtain a judgment against a business. We do not believe that this was the original intention for these UCC liens and should be against public policy. However, this is exactly what has been happening in the field.
It is extremely important for businesses to discuss how to protect their assets and property against UCC liens with an experienced attorney in this field so they can continue conducting business while defending themselves against Merchant Cash Advance creditors. We have frequently encountered UCC liens that were improperly, purposefully and even fraudulently placed against businesses. It is possible to have UCC liens vacated if they meet the criteria to do so although it usually must be done through some form of emergency relief. This usually means asking for a Temporary Restraining Order, or a Declaratory Judgment but it also may be possible to file a lawsuit for damages if they have been incurred due to the loss of business and improper use of UCC liens.