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• Tax Liens Sales Procedures
• Tax Liens Trends
• Risk Analysis - Tax Liens
• Tax Liens and Competing Claims
• Tax Liens and Statute of Limitations
• Discharging a Tax Lien
• Tax Liens - From the Tax Lien Purchaser's Perspective
• Tax Liens - From the Government's Perspective
• Tax Liens - From the Tax Payer's Perspective
• Negative Effect of Tax Liens on 3rd Parties
• Pitfalls of Investing in Tax Liens
• Pitfalls of Tax Lien Sales for Taxation Authorities and Local Government

Tax Liens on Personal Property & uniform commercial code form 1

Liens are created the application of the doctrine of equity, which requires that payment for goods and services take place according to the agreement of both parties. To secure an extension of credit with assets, the registration of the agreement or lien is required in order to successfully defend the submissions of other creditors, in the event of a debtor becoming insolvent.

A tax lien on personal property is the right to retain such property as payment for services, material or money expended on that property. If payment is not satisfied in full, the lien is enforced by possession of the tax lien property or by foreclosure sale in lieu of the outstanding debt.

Personal property is not property that is owned ‘personally’, but a term used to differentiate it from real property, which comprises of land and fixtures.

Perfecting a Lien
On the extension of a loan of cash or property to another, a lien is able to be created and placed upon the same tax lien properties or on some other asset owned by the debtor. The agreement between debtor and creditor in regard to the securing of the loan with assets creates the lien, and it can be perfected by filing and executing a Uniform Commercial Code Form 1, in the Secretary of State’s office, or depending on the State, in the county court.

For a period of 5 years, this procedure validates the lien and provides notice that it exists.

A lien on consumer goods for personal or home use, is perfected automatically and need not be executed and filed, but that for goods used in a business must be perfected formally.

Often a small business will have assets that are mixed and contain a consumer and a business component together. The primary use of the asset determines if filing is needed to perfect the lien, and so the debtor must specify in an agreement what use the asset will be put to, as if it is not perfected and used primarily for business, the lien is deemed not to exist in law.
 
Other Creditors
While a tax lien on property take priority over other liens, usually, the first to record a lien in this manner takes priority over later recorded liens, but in the case of a lien that is secured by the inventory of a business, the debtor must here given notice of the preexisting lien over inventory before purchasing the inventory. Even if not recorded first, the inventory provider’s lien that arises will have priority if it has not been provided with adequate notice. If the transaction was for a provision of property outside of inventory, and notice has not been given, the other creditor’s lien will prevail if a Uniform Commercial Code Form 1 is filed within 10 days of the purchaser taking possession.

The Uniform Commercial Code Form 1 can be used for floating liens that can be applied to future personal property or future credit. A lien can be created by agreement, to subject future acquired personal property of the same particular class to the same lien, and similarly, a lien over future credit extended can be created in an agreement for an open account, whereby future extensions of credit are subject to the same lien and applied to the same agreement.
The Form can specify one or both types of lien.

While a tax lien on personal property can apply to all future acquired property of the same class, future extensions of credit, or both, a lien on real property, commonly called a mortgage, can also apply to future provision of credit. These agreements are commonly referred to as open mortgages.

Liens on real property are created by mortgage deed which is then recorded, with the terms and conditions of the loan being included in a separate promissory note.

Still, this mortgage, cannot apply to future acquired real property, and if the mortgagee requires this newly acquired real property as security, it needs to be transferred as security under a separate mortgage agreement, after the property has been purchased.

In the case of a lien needing to be applied to a motor vehicle, this is perfected by placing the lien on the title of the motor vehicle and submitting this title to the motor vehicle authority.

Statutory requirements demand that correct wording be used in the execution of many documents, and this wording may vary from State to State. A thorough investigation of the appropriate State wording requirements is recommended in order to ensure validation of the lien.

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