Types of Commercial Services
Certificates of Good Standing and UCC Searches are our most commonly requested services to complete a commercial real estate transaction.
Confirm if there are any UCC-1 Financing Statements against an entity or individual’s personal or real property.
Certificates of Good Standing
Verify that a company is registered and authorized to do business in a state.
While it’s considered a commercial service, this search can be conducted for individuals as well as business entities. A UCC search finds and compiles UCC-1 Financing Statements filed against a business or individual. If there are no UCC-1 Financing Statements filed, the report will note that no statements were found.
A UCC-1 Financing Statement is sometimes referred to as a UCC lien. Like a mortgage, which is another type of voluntary lien placed on your property to secure the interests of the lender, the filing of a UCC alerts the rest of the world (and potential buyers or investors in a business) that the lien exists against the assets named in the document.
Some types of assets that are commonly collateralized include:
- Real Estate
- Office Equipment
- Investment Securities
- Letters of Credit
- Accounts Receivable and Payable
- Other business assets
Unlike regional land records systems that hold mortgages and essentially catalog a tangible asset (real estate via the legal description), the UCC filing system in each state is designed to track and give notice of liabilities attached to both tangible assets (computers, desks, fax machines, etc.) and intangible assets (accounts receivable).
Another important distinction between a mortgage and a UCC-1 Financing Statement is that the UCC lien will “lapse” or expire after a period of time (usually five years) if a continuation isn’t filed. When the debt is paid, the UCC lien is terminated, but sometimes a terminated UCC lien may still show up on records as “filed.” An additional search for specific terminations is required to confirm the most up-to-date status.
For mortgages, a lien release, satisfaction, or deed of reconveyance is recorded to indicate the debt is paid in full instead of a termination.
Like the local county or city recorder holding land records, each UCC search database or office may have different search processes and protocols, so it’s important to be aware of these regional nuances when performing the search yourself.
Why is a UCC search important?
A UCC-1 Financing Statement is a legal document securing an interest in the personal property on behalf of a creditor. In business, it’s common for the owner to leverage personal or real property to secure a loan.
Before the UCC-1 filing system was established, there was no way for lenders to determine if assets used for collateral in a loan were already part of another loan agreement. While it’s standard business practice to have a UCC lien filed against an asset, that means that as long as the UCC-1 Financing Statement is active or filed, that asset can’t be transferred, sold, or used as collateral for another loan.
Searching for UCC liens is especially important in a commercial real estate transaction since the personal or tangible assets within the business may sometimes be negotiated into the contract. Sometimes, the real estate property itself or fixtures adhered to the property have a UCC lien filed against them.
What will you find in the UCC search report?
The UCC search report will include:
- A cover page referencing
- What entity or individual was the subject of the search
- A receive date of the search
- Results Message (e.g. “No Statements Found”)
- Report compiled date
- Attached documents of the pertinent search results
- Results highlighted in yellow are terminated
- Results highlighted in red are active/filed
Certificates of Good Standing
A certificate of good standing is another important legal document related to businesses. It shows that a company is legally recognized and registered with the state. This document is known by other names like Certificate of Existence, Status Certificate, Certificate of Authorization, and Certificate of Status.
While it’s not required to obtain this certificate to legally do business, it’s helpful in order to do some of the following:
- Get funding from investors
- Insure the business
- Demonstrate legitimacy to potential business partners
- Open a business banking account
- Create a contract with another company
- Renew some licenses and permits
- Setting up a point of sale system to process credit or debit payments
- Sell the business