Liens with no debt?? Crazy!

Last week I got an e-mail from a good, long-time, Midwest dealer whom I have known for years. He was very disturbed and rightly so. He wrote, “Mr. Sherwood, I, like most all other marine dealers across the nation, have struggled to get through some very difficult times in our industry. Due to excessive rates from some of the commercial floor plan companies, we have paid all of them off and have been able to set up a line of credit with our local bank. This has worked fine up to now, but our line has been unsecured and to get an extension or increase to get us through the winter, the bank wants some collateral. I certainly understand this and do not have a problem with it. The problem is when our bank does a UCC search on our business there are seven different companies that have filed liens on all inventory or equipment or both. We do not owe any of them! But the liens have not been released.”

He went on, “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. I wonder how many dealers realize what liens have been filed on their businesses and what those liens cover.”

“It all began when we did some floor planning with different products. 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!”

In my response, I asked the dealer which major companies had liens on his business. He answered, “It was ITT, Textron and others. It seems that most of them have been folded into some branch of GE.” He added, “I am getting the mess straightened out, but it has been a real hassle.”

What’s wrong with this picture? The dealer floor plans his products with a company, pays them off, and they still have liens on the business, inventory, and maybe even the dealer’s grandkids. And he does the right thing by arranging for a line of credit with his local bank. But then the liens rear their ugly heads and delay him from getting the credit line extended or increased.

I guess it behooves all dealers to read the fine print on all financial agreements that are signed with financial institutions. And perhaps have an accountant and lawyer look at them, too, before they are signed. I talked to the Vice President of Commercial Loans at the bank where I do business and explained the issue the dealer was having. His first response was, “Tell him to get a lawyer to get the liens released.” He also said “In the state of Wisconsin, (where I live), lenders have a specified length of time in which they must release a lien when the loan or floor plan is paid in full.” He felt that other states would have the same regulation regarding release of liens.

In the future I would recommend that dealers insist on getting a release of lien when a floorplan is paid off.

Has any one else encountered this situation? Let me know.

About Ben H. Sherwood

Ben H. Sherwood is a marine industry veteran and a marketing consultant who operates Sherwood Marine Marketing in Pleasant Prairie, Wis. For more info, click About on the main menu.

6 thoughts on “Liens with no debt?? Crazy!

  1. Ben, the situation is a very common one. It behooves all dealers/business owners to know the details of these liens. Many times the terms of liens are negotiable when you enter into financial agreements; you need to always ask! Also, you need to keep current on what is filed on your business and make sure the bank or financial institution does remove the lien once payment in full is made.
    It wouldnt hurt if someone tried to interest Congress in some type of reform (perhaps a law) that obligated the bank or financial institution to remove the lien once payment is made. Maybe this is something your Industry associations should look into. I will mention it to our MRAA ‘man on the hill, Larry Innis. This dealer may take a moment to contact MRAA and NMMA as well. You never know, you could get what you ask for !!!
    Best, Ed Lofgren 3A Marine Service and Chair/MRAA

  2. Ben – As usual, you are right on the money with this subject! I’m guessing most dealers aren’t even aware of this and they need to know about it. Several years ago in Ohio, the marine trades associations blocked an attempt to legislate blanket UCC’s financial institutions wanted to cover everything in sight at dealerships! This was one of the reasons we opposed it.
    I an a regular reader of your blogs — every dealer should be reading them, too. Your extensive experience in the industry is of great value, especially to retailers. Keep it up!

  3. Norm:

    Thanks for your nice comments. It was great that your association blocked the attempt to legislate blanket coverage by UCC’s financial institutions.

    Dealers – check out Soundings Trade Only e-Newsletter regularly and you can read Norm’s insightful comments on the industry. He knows the business.

  4. Ben, your readers might want to look at UCC Section 9-509(d) (which may vary from state to state) regarding termination of UCC financing statements.

  5. Hi..Read and enjoy your articles.I have an opportunity to represent a US boat manufacturer up here in Canada and want to put the best foot forward to create a great business/marketing plan for a successful launch.I’m new to this so any input would be greatly appreciated..want to keep people working and hopefully create new jobs..

    Dale..

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