For many landscaping corporations, shopping for used tools is a superb worth. In spite of everything, industrial mowers, skid steers, and different OPE can carry massive value tags, so discovering used one could make an actual distinction.

However there’s a problem all patrons of used tools ought to concentrate on, no matter price ticket. And that’s if the used tools you might be shopping for has a hidden lien on it. 

Think about this situation:  You’re a landscaping firm trying to purchase a used skid steer. You discover a firm promoting one and it appears good to your wants. The paperwork seems tremendous, the corporate promoting it has owned it for greater than 5 years, they’ve a mortgage payoff letter, and so on. You purchase it. 

A number of months later, you might be contacted by the vendor’s financial institution. It seems the vendor defaulted on a unique mortgage they took out two years in the past. However written into that completely different mortgage was a blanket lien. This implies all the vendor’s belongings on the time have been topic to this blanket lien, together with the skid steer you bought. Because of this, the financial institution is claiming possession. 

After some research, your lawyer confirms this – the financial institution does certainly personal the skid steer and may repossess it from you. And even worse, if this occurs, additionally, you will lose the cash you paid (until the loan-defaulting vendor makes good on it— which I wouldn’t depend on.) 

This isn’t meant to scare you. The earlier instance is kind of uncommon. However it’s solely attainable, particularly when buying from a non-public vendor (and never a certified seller/reseller.) As an tools lender, we’ve seen this occur, so it’s one thing that patrons ought to concentrate on.

The “Hidden Lien” Peril

Each used tools purchaser ought to concentrate on liens and the way they are often uncovered. The commonest approach is to conduct a Uniform Business Code (UCC) search, which usually exhibits most liens. (Observe: liens are a authorized declare and filed with the state. The UCC search is supposed to point out what liens a debtor has filed towards them.)

This UCC search might be performed by one in every of a number of events: in case you are shopping for from a certified reseller, they normally conduct one earlier than they even record tools. If you’re financing, your lender might carry out one. And if neither of those are true, you need to insist on one from the vendor, or conduct one your self.

A UCC search can usually be carried out on-line with every state’s Secretary of State workplace, and the precise course of and charges range for every. A fast database of every state’s workplace might be discovered on the Nationwide Affiliation of Secretaries of State positioned at www.nass.org/business-services/ucc-filings. You might also decide to make use of third social gathering UCC search companies (merely search on-line for them and also you’ll haven’t any scarcity of choices.)

Will a UCC Search assure a clear title? Sadly, no. Nothing can 100% assure a lien-free title on any piece of used tools. There are a couple of the explanation why. One is that used tools can have lengthy paper trails, particularly if there have been a number of homeowners. There are additionally many variables in a UCC search – the geographic locale searched, comparable firm names, lengthy serial numbers hand-entered… there’s loads of room for error. 

However the largest purpose is the previously-mentioned blanket liens. 

About Blanket Liens 

Blanket liens are widespread in financial institution loans. When a financial institution loans a enterprise cash, they usually have a blanket lien written into the tremendous print. This implies all belongings of the borrowing firm are beneath this lien, even when they’re absolutely paid off and unrelated to the present mortgage.

This turns into problematic when an organization seems to promote an asset – whether it is beneath a blanket lien, formally it can’t be bought with out permission. However since blanket liens are a “tremendous print” clause, they’re usually forgotten about. It’s not a stretch for a vendor to truthfully assume there’s no lien on one thing they paid off years in the past. (Observe: If your organization has a present financial institution mortgage, you in all probability have a blanket lien on all belongings.)

Blanket liens can return a good distance too, even a number of homeowners in the past for a specific piece of kit. Since they’re solely enforced on a default, it’s simple to see how they are often forgotten. However they’re all authorized and legitimate.  Most UCC searches will uncover blanket liens, however as acknowledged earlier, it’s an imperfect course of. 

How Can Used Gear Consumers Higher Shield Themselves?

The best approach for a purchaser to raised defend themselves from hidden liens is to purchase from a certified seller / reseller. They may usually conduct a UCC search, and extra importantly, most will stand behind the tools if one thing does come up (however remember to ask about this.)  

If shopping for from a non-public vendor, make sure that a UCC search is carried out, both by the vendor otherwise you. 

One other key level in shopping for from a non-public vendor is to ensure all of the paperwork is current. If the vendor isn’t the unique proprietor, make sure the paper path might be traced to the unique sale from the producer. If this isn’t so, you must ask your self how a lot you belief the vendor. As soon as tools has modified palms a couple of instances, the paper path can get murky. Personally, I’d not purchase used tools with a damaged paper path.

Truthfully, an especially excessive proportion of used tools gross sales haven’t any lien points. However because the purchaser is in the end accountable, performing your due diligence can go a good distance in making every part go easily.

Furman is the vice chairman of Technique at Crest Capital, which gives small and mid-sized corporations financing for brand spanking new and used tools, automobiles, and software program, in addition to providing tools sellers a easy and risk-free financing program. Go to them on-line at www.crestcapital.com . Or see Furman’s prevoius article for Turf: “Tax Alert 2023: Bonus Depreciation ‘Write Offs’ To Lower” at turfmagazine.com/2023-tax-alert-bonus-depreciation/. 

All views expressed on this article are these of the creator and don’t essentially symbolize the coverage or place of Crest Capital and its associates. These views are additionally opinion – at all times communicate to your accountant, tax, and or authorized skilled earlier than participating in any monetary contract or tax matter.