How UCC and Tax Lien Searches Are Connected in Commercial Due Diligence  

Overview: UCC and lien searches play a central role in commercial due diligence, but they do not follow the same legal or filing framework. UCC filings are generally filed and searched based on the debtor’s state of formation or individual’s primary state of residence, while tax liens may be filed under different state, local, or office-location rules. Even when both UCCs and liens are maintained on the same index, differences in jurisdiction, filing location, and debtor name requirements can affect search results. That is why an effective due diligence strategy often includes multiple UCC and tax lien searches to help uncover all relevant liens and filings. 

The Fundamentals 

In commercial due diligence, both UCCs filings (perfected Article 9 Security Interests) and tax liens are essential. In most jurisdictions, tax liens are filed and maintained on the same central public index as UCC financing statements. However, there is more to consider to ensure all potential records are found. 

While UCCs and tax liens  often appear on the same searchable index at the state level, UCCs and tax liens operate under different legal frameworks and follow distinct filing rules. A UCC financing statement filed by a secured party provides public notice of a consensual security interest in personal property collateral. A tax lien filed by the IRS or state taxing authority creates a statutory claim against the debtor’s personal and/or real property without the debtor’s consent. Both affect a lender’s security position, but in different ways and with different priority rules. 

Consensual vs. Statutory Liens 

UCC liens are consensual created through contractual agreement. When parties enter into a security agreement, the UCC filing is drafted and then filed in the proper filing office for perfection and priority. Statutory liens, by contrast, occur by operation of law without the debtor’s consent. When an individual or entity fails to pay taxes, the IRS or a state or local taxing authority may file a lien in the public record if collections efforts have not resulted in a payment.  

Article 9 of the UCC governs secured transactions but not statutory liens, even though tax liens often appear on the same searchable index as UCC filings. This creates a critical filing location difference: UCC financing statements are generally filed and searched based on the state of formation of an entity or the primary state of residence of an individual, while statutory liens follow different laws and are not filed based on the state in which the debtor entity was formed. Statutory liens almost always take priority over consensual liens. 

Jurisdictional Filing Differences 

Consider a corporation formed in Delaware whose Chief Executive Office is located in California. For UCC due diligence, Article 9 of the UCC specifies that UCC financing statements must be filed and searched with the Delaware Secretary of State, regardless of where the corporation conducts business. However, statutory tax liens follow different jurisdictional rules and are not filed based on the state of formation, but rather based on the location of the Chief Executive Office of the debtor, which could be but often is not in the state of formation. 

For this Delaware corporation with its California Chief Executive Office, at minimum two separate searches are necessary: a UCC search in Delaware (state of formation) and tax lien searches in California (location of Chief Executive Office). Federal tax liens against this Delaware entity would not be found on the Delaware index where the UCCs are located, even though Delaware maintains federal tax liens on the same index as UCC financing statements. 

Moreover, UCC Article 9’s strict rules for debtor names on financing statements are not applicable to tax liens. The taxing authority has more flexibility regarding debtor name accuracy, and searchers must be aware of this and consider searching debtor name variations and former names in addition to a debtor’s true legal name as it appears in the charter documents and any amendments. 

State-by-State Index Variations 

Which liens are maintained on which index in each state varies significantly. The rules also vary from state to state regarding which liens are filed at the central level, local level, or both depending on state law. Consider these examples: 

• Ohio Secretary of State maintains personal property-related UCC liens only. The local county recorder offices maintain state and federal tax liens. 
• Colorado Secretary of State maintains personal property-related UCC liens and federal tax liens, but not state tax liens. 
• California Secretary of State maintains UCCs, federal tax liens, state tax liens, and judgment liens, although the statutory liens may also be filed at the county recorder offices as well, depending on the property being encumbered. 
• UCC and tax liens related to real property are typically filed in the county where the real property is located. 

What This Means For An Effective Due Diligence Search Strategy 

Due diligence searching requires a clear understanding of where to search and which liens need to be discovered. Simply because tax liens are on the same index as UCCs does not guarantee that you will find all the effective UCC filings and statutory liens that due diligence warrants. While UCC filings and tax liens are connected in the due diligence process, keep in mind that not all searches are created equal. Successful due diligence requires recognizing and navigating the jurisdictional and procedural distinctions that separate them. 

This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.