By: Joe H. Dickerson, CFE
Start with UCC (Uniform Commercial Code) Filings that are with the Secretary of State in nearly every state. They are used to show a security interest in an asset that does not have a title. For instance, your cars, boats, and airplanes, all have a title, and the lien for the security purposes to the lender is on the title; you can’t transfer title without clearing that lien. But if you have financed something that doesn’t have a title, for instance, you bought a washer and dryer at Sears, there’s no title to that; yet Sears has the right to repossess that if you that if you don’t make payments. So, the public notice of that security interest is filed in a Uniform Commercial Filing recorded with the Secretary of State.
Banks must file a UCC showing what their collateral is for a loan, if the collateral, such as personal property, does not have a title. Search the debtor’s name with the Secretary of State, and you will find the UCC filings; then you see what bank, or other lender, has a security interest in the asset.
There are a couple of other things you should consider when you find UCC encumbering some of your debtor’s assets. You will often find, upon inquiry, that the debt has been paid in full, but the secured party failed to pay the nominal recording fee, so no release has been recorded. This is a simple matter to get resolved; it usually only requires a nice phone conversation, and the former creditor will file the necessary release. You can then take the asset, liquidate it, and apply the proceeds to your judgment.
Here’s another technique that, with a little work, may lead to a significant recovery. We know that if any asset is currently covered via a UCC filing, one cannot take that asset, right? Not always, so let’s do our homework and see what we can do. We find that the debtor financed a large piece of heavy, yellow, construction equipment for $200,000. That equipment originally sold for $250,000, with $50,000 down and monthly payments against the balance. There’s a building boom in the United States, and that manufacturer is 12 to 18 months behind in delivering new equipment. Supply and demand is in action, and more homework is now called for. Research shows that the same equipment, if you are even able to locate it, currently brings at least $285,000, in reasonable condition. You determine the payoff on the note reflected on the asset is currently $125,000. You take the equipment subject to the debt and spend $5,000 to recondition it. You now sell it for $280,000. It cost $5,000 for repairs, $125,000 to pay off the loan balance and you just recovered $150,000 that everyone else missed because there was a UCC filed against the equipment. NOT a bad return for the judgment creditor’s client.