Legal Blog

M & A Nuggets: Free and Clear? Make Sure

shutterstock_245731072The purchaser of a business typically negotiates to buy the assets free and clear of title defects, also referred to as liens.  The first step in that process is to determine what liens exist on the assets.  The standard method to determine that is to conduct a search of the Uniform Commercial Code Financing Statement records in the state where the seller is organized.  This is often referred to as a UCC Search.  However, not all liens on assets are filed in the UCC Records.  Although most liens are recorded with a state’s UCC records, liens on other assets must be recorded elsewhere, and this varies state by state.  For example, most states require that liens on vehicles (including trucks and any other titled equipment) be recorded in the state’s motor vehicle or transportation department records.  Liens on boats and airplanes are often filed with a state’s equivalent of a department of natural resources and the Federal Aviation Administration, respectively.  There are other filing places where liens are not required to be filed, but are often filed to provide additional notice of the liens to the public and the governing authority.  For example, liens on liquor licenses are often filed with the local liquor board.  The bottom line is that if you intend to take the seller’s assets free and clear of liens, make sure that you understand what the specific assets are, where liens are required to be filed and that you conduct adequate searches of those filing places.

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