Business Loan Paid in Full But UCC Filing Remains? How to Remove It is a serious matter. Below is a factual, scenario-based look at practical strategies for addressing and removing a UCC financing statement after the underlying debt is satisfied. Our goal is to explain how an experienced attorney might approach these filings under the Uniform Commercial Code (UCC).

Understanding UCC Filings

When you take out a secured business loan, the lender often files a UCC-1 Financing Statement under Article 9 of the Uniform Commercial Code. This document perfects the lender’s security interest in your business assets, publicly alerting other creditors that the lender has a claim. If you have paid the loan in full, the lender should terminate the UCC filing. However, mistakes or oversights can leave the filing active, potentially harming your credit or complicating future financing.

Why Remove an Outstanding UCC Filing?

  1. Credit Implications: Other potential lenders may see an active UCC filing and assume you still owe money, making it harder to secure new funding.
  2. Asset Restrictions: Prospective buyers or partners may be wary of entering deals involving collateral that seems encumbered.
  3. Legal Clarity: Active UCC filings can cause confusion if there is a legal dispute about ownership of assets.

Possible Strategies: Different Scenarios

1. Cooperative Termination with the Lender

Scenario: You have a strong relationship with your lender. They confirm the debt is satisfied but have not yet filed the UCC-3 termination statement.

Strategy:

  1. Request a UCC-3 Filing: Under UCC § 9-513, once the debt is paid, the secured party must file or provide you with a termination statement. A formal written request can expedite this.
  2. Follow Up on Filing: Even if they agree verbally, confirm the filing with the Secretary of State’s office where the original UCC-1 was recorded.
  3. Document Retention: Keep proof of the loan payoff and the termination statement. This may protect you if a future dispute arises.

2. Unresponsive or Defunct Lender

Scenario: Your lender no longer responds to communications, is out of business, or fails to file a termination statement despite repeated requests.

Strategy:

  1. Self-Help Termination under the UCC: In some states, if the secured party does not file a termination statement within a specified time (often 20 days after a written request), you can file a termination statement yourself. Consult an attorney on state-specific rules.
  2. Notice of Inaccurate Filing: You may send a formal notice to the Secretary of State indicating the filing is no longer accurate or valid under UCC § 9-518.
  3. Potential Litigation: If the lender refuses or is unavailable, a court order may be necessary to compel termination or declare the filing invalid. In re Apex Oil Co., 718 F.3d 686 (7th Cir. 2013), illustrates that courts can step in to clarify or remove liens when the creditor is uncooperative or defunct.

3. Disputed Payoff Amount

Scenario: You believe you have fully repaid the loan, but the lender insists on a remaining balance. Both sides dispute who owes what.

Strategy:

  1. Review the Loan Documents: Verify principal, interest, fees, and late charges. An attorney or forensic accountant can reconcile payments and confirm if a balance remains.
  2. Negotiation and Mediation: Resolving payoff discrepancies outside court may be faster and more cost-effective. A mediation session could lead to a settlement and UCC termination.
  3. Litigation for Declaratory Relief: If negotiations fail, filing a declaratory judgment action can clarify your debt status. Once a court declares the loan paid, the UCC filing must be terminated.

4. Refinancing and UCC Continuation

Scenario: You refinance your existing loan with a different lender, and the original UCC filing persists even though you no longer owe the first lender.

Strategy:

  1. Subordination Agreements: Sometimes the new lender and the original lender enter a subordination arrangement rather than a complete release. Confirm if your new deal requires the prior lender to terminate their UCC filing altogether.
  2. UCC-3 Amendment vs. Termination: If the old lender’s interest remains but in a diminished capacity (for instance, only a partial interest continues), an amendment may suffice. Otherwise, insist on a full termination if the debt is paid.
  3. Case Precedent: Courts generally prefer clarity in secured transactions. In re Motors Liquidation Co., 777 F.3d 100 (2d Cir. 2015), illustrates the complications arising from ambiguous termination statements. Make sure any UCC-3 filing unambiguously addresses your situation.

Step-by-Step Strategy to Remove a UCC Filing

  1. Locate the Original Filing: Obtain a copy of the UCC-1 from the Secretary of State’s office. Confirm the correct file number and collateral description.
  2. Send a Written Request: Notify the lender in writing that the debt is satisfied. Include supporting documents, such as a payoff receipt or loan statements.
  3. Check Response Time: States often impose deadlines on the lender to file a UCC-3 termination. Monitor these deadlines closely.
  4. File a Termination Statement (If Necessary): If the lender fails to act, consult an attorney about filing the termination yourself or pursuing a court order.
  5. Confirm Filing with Secretary of State: Follow up to ensure the termination statement is recorded, and keep copies of all documentation.

Working with an Attorney vs. DIY

Although some business owners handle UCC filings alone, legal guidance helps ensure accuracy and avoids potential disputes. A professional can advise on state-specific requirements, handle conflicts with the lender, and file any necessary legal actions to remove invalid liens.

Conclusion: Take Action to Clear Your Record

When your business loan is paid in full but a UCC filing remains, you risk unnecessary encumbrances on your assets and credit profile. A clear, methodical approach to terminating the UCC financing statement ensures you protect your interests.
Contact an experienced commercial attorney to confirm that your UCC-1 filing is promptly removed or terminated and that your business can move forward unencumbered.