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“We’re happy to extend the money you’ve asked for,” said the banker. “But, unfortunately, our UCC search has discovered seven different companies have liens on your inventory or equipment or both.”

“I don’t understand,” replied the dealer. “Because I don’t owe anyone a dime!”

It’s a scenario that would ruin anyone’s day! Sadly, it’s a true story from a Midwest dealer who was extending a line of credit with his very willing local banker. Most important, it could be an important wake up call for all retailers.

The dealer recently brought his situation to the attention of marketing consultant and industry veteran Ben Sherwood. He publishes an excellent “Marine Business Blog” that I read regularly and I urge every dealer to do the same at:

Here’s the rest of the story. After getting past the shock and viewing the list of lienholders, the dealer said: “I don’t think some of the companies that have liens on our dealership are still in existence. I need to contact each and try to get releases. I would bet many other dealers are experiencing the same problem.

“It all began when we did some floor planning with different products,” the dealer continued. “Little did I know that the liens were not just against the particular product and, once established, remained even if the balance had been paid in full. Most of the liens covered all inventory, equipment, fixtures, deposit accounts, chattel paper, contract rights, general intangibles, etc. Truly, unbelievable."

Among the companies filing the liens were Textron, ITT and others. Most of them have been folded into GE. “I’m getting the mess straightened out,” the dealer reports. "But it has been a real hassle.”

As this example shows, UCC filings may not be liens limited to inventory as many believe. In fact, a UCC filing could be a blanket that covers virtually every aspect of the dealership. A few years ago in Ohio, a big floorplan lender proposed legislation allowing such blanket filings. Ohio’s marine trade associations blocked the attempt for this and other good reasons. 

Clearly there’s never been a better time for all dealers to search out any possible liens that may be against them via old UCC filings. As this dealer learned, just because you paid them off doesn’t mean they were ever properly released. Likely they were not!

In addition, local marine trade associations may want to take time to review state law governing the use and release of UCC’s. They may vary. For example, are there any limits on what a UCC can cover? Is there a time by which a paid off lien must be released? Do member dealers even really understand the UCC impact? Is there need for a legislative initiative on behalf of the member dealers?

As this Midwest dealer so aptly put it: “I wonder how many dealers realize what liens have been filed on their businesses and what those liens cover.”


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