Business lien search: how to check a business for liens before you buy

What is a business lien search?

A business lien search looks through public filings for claims against a business or its assets before you agree to buy it. You are looking for UCC liens, tax liens, and judgments while you can still change the price or walk away.

The search does not say whether revenue is real. It says whether someone else already has a claim that has to be paid, released, or argued about at closing.

Read UCC liens and tax liens when buying a small business for how those two filings change a closing, and BizFacts due diligence: a 6-layer public-records pass for how a records check fits the rest of diligence.

What is a UCC lien?

A UCC lien, filed as a UCC-1 financing statement, is public notice that a secured party claims an interest in collateral of a debtor, often the business. The filing is notice. The loan documents define the debt. An active filing means someone expects to be paid or released.

• The secured party is who must send a payoff letter and a release.
• The collateral line says what is pledged: a wide blanket description, or a named list such as equipment, inventory, vehicles, or receivables.
• Check the filing date, the lapse date, and whether it is still active. A lapsed filing is not the same fact as a live one.

If it matches a debt the seller already named, the close is usually a payoff through escrow and a termination. Your lawyer puts that in the purchase agreement.

What is a tax lien?

A tax lien is a tax authority's claim against property for unpaid tax. It can come from the IRS, a state, or sometimes a local tax office. It can attach to business assets and compete with other people the company owes.

At closing it often becomes a payoff, a holdback while a number is confirmed, or a later date. The filing shows the claim, not every missing return behind it. Have a lawyer write how it gets cleared.

What is a judgment, and how is it different from a lien?

A judgment is a court's decision that one side owes money or must act. A lien is a claim against property. A recorded judgment can act as a lien. An open lawsuit is not a judgment yet. It can still change the price. Whether a recorded judgment attaches to the assets you want is a state-law question for your lawyer.

• A stock or membership purchase can bring the company's claims with it. An asset purchase can still leave a seller's judgment on assets you expect to take. Read asset sale versus stock sale with your lawyer.

Ask for the case name, the court, and the status, and read those against the docket.

Where do UCC liens, tax liens, and judgments show up?

They sit in different public filing systems, so a search of one office misses the others. Buyers and their lawyers commonly check secretary of state UCC records, federal and state tax-lien records, and court dockets. A lien on real estate may also be in the county land records.

• UCC-1 filings are often made with a secretary of state, or that state's equivalent office. The right state follows the debtor.
• Tax liens can appear in federal records, state records, and county land records when the claim is against real estate.
• Lawsuits and judgments live on court dockets, which are split by county, by state, and in the federal courts.
• Searching the trade name can miss a filing whose debtor is the legal entity, an old name, or a holding company.

Search the entity that owns the assets, the entity on the contracts, and prior legal names. The wrong name can look clean.

Why do liens and judgments matter at closing?

They change who gets paid, which assets transfer clear of claims, and whether you can close on the day you picked. Found early, a filing is a negotiation. Found the week money is supposed to move, it becomes a delay, a new price, or a deal that stops.

• Payoff and release. An active UCC on the seller's debt usually means a payoff letter, payment through escrow, and a termination.
• A holdback. If the tax figure is not final, escrow can keep part of the price until it is. See what escrow does in a business sale.
• Price. Debt the seller never mentioned belongs in the price talk, not as a new line on the closing statement.
• If a machine cannot be released on terms you accept, write it out of the sale. An indemnity is a weaker fix than clearing the claim before the seller is paid.

What should you ask the seller?

Ask which debt each filing secures, whether it will be paid off, and who signs the release before closing. Start here: which loan does each lien secure, and will it be paid off and released at closing?

• Is the debtor the company you are buying, a parent, an affiliate, or an old name?
• Does the collateral match the equipment, inventory, vehicles, or receivables in the deal?
• Are tax debts, open cases, or judgments missing from the balance sheet you saw?
• Will payoff letters and releases be closing conditions, and who orders them?

Put the answers in the purchase agreement. If the closing date slips, search again before money moves.

How do you read what you find?

Read who owes, who claims, what is pledged, the dates, and whether the filing is still active. Then set that next to the seller's story. A hit is a list of questions, not a legal opinion.

1. 1
   Lock the legal names

   Use the asset-holding entity, the entity on the contracts, and prior names. A mismatch means the clean result may be the wrong company.

2. 2
   Separate the filings

   A UCC-1, a tax lien, and a judgment are cleared in different ways.

3. 3
   Note collateral and dates

   On each UCC-1, write down the secured party, the collateral, the filing date, and the lapse date.

4. 4
   Match the hits to the seller's list

   A filing the seller cannot name on the debt schedule needs a harder look.

5. 5
   Put the clearing steps in the contract

   Payoff, release, and any holdback go in the purchase agreement. Your lawyer writes them.

What does a BizFacts report include for a lien check?

A BizFacts report compiles public and commercial records on a US business, so you can compare the listing with the record. It is a record search. It does not verify revenue, confirm profit, or replace a quality of earnings review, and it cannot see a claim that was never filed. It does not release a lien or write a payoff letter.

• Fast-Check is $49, one time: registration and standing across states, government watchlist screening, a bankruptcy search, and web presence analysis. No UCC lien search and no tax lien search on this tier.
• Verified is $249, one time: everything in Fast-Check, plus a business litigation search, a UCC lien search, a federal and state tax lien search, adverse media screening, a federal tax standing signal, and industry classification and benchmarks. Civil litigation and judgments sit in the litigation layer.
• The M&A Due Diligence Bundle is $499, one time: everything in Verified, plus 90 days of continuous monitoring, alerts on new liens, filings, and status changes, and an investor-ready PDF dossier.

You do not need the seller's permission. The report covers the business entity, not the owner's personal credit file. A lawyer still has to read priority and the release.

Run a BizFacts report before you treat the seller's word as the lien file.