🚀 Check out the Q4 changelog for our latest product developments
Guides
Dec 6, 2023

Business Lien Search: How to Verify a Company for Onboarding

Teddy Butz
Marketing

In brief: 

  • A business lien search is a lookup of whether a business has any liens—legal claims to its assets if a debt isn’t repaid—filed against it. This can be useful information for assessing risk in a B2B relationship.
  • Types of liens include consensual (as part of loans, mortgages, and other contracts), statutory (business tax liens and mechanic’s liens), and judgment (created by court rulings on lawsuits).
  • Information on business liens can be found at Secretary of State offices, at state or county recorder’s offices, or at the IRS via a Freedom of Information Act request. A much more efficient method, however, is to use a dedicated business information retrieval solution such as Middesk.

Debt is a fixture in modern economies. But some debts are riskier than others. Some can come with legal notices that if the indebted entity fails to repay the debt, the creditor can take possession of the debtor’s assets to pay off the debt. These notices are known as liens.

Liens can be especially important to know about when engaging in B2B relationships. This is because a blanket lien on business assets can deprive a business of the equipment or funds it needs to maintain its operations, should it fail to repay the associated debt on time. A company looking to start or maintain a relationship with a business should consider any liens against it: what the lien is for, how much the debt is worth, and what collateral could be repossessed if the debt isn’t repaid on time.

This article discusses some of the different types of liens that can be filed against businesses, and how to find the details of a business lien.

First, let’s answer a couple of basic questions: what does a lien on a business mean, and why would another company want to search for it?

‍

A business lien search is the process of looking up whether a company has had any type of lien filed against it. A lien is an official notice that an entity has a legal claim to the property of another entity that has an outstanding debt, usually if the debt is not paid by a certain time.

Another company may want to know about a lien against a business for due diligence reasons. If a business has an outstanding lien and doesn’t pay off the associated debt on time, it can be forced to forfeit property or assets – some of which may be integral to the business’s operations. Having an active lien may also limit a business’s ability to get additional funding, as lenders would be able to see there would already be some collateral that was off-limits to them.

A lien on business assets is a warning sign that the business could soon default on its obligations: to creditors, to partnered companies, or to both. This makes it a risk factor companies need to take into account when deciding to initiate or continue a B2B relationship.

‍

Types of liens in business law

There are three general types of lien in business law: consensual, statutory, and judgment.

  • Consensual: A lien that an entity agrees to have placed on their property as collateral for a contract. Examples include UCC liens and liens for bank loans (such as for mortgages on houses or business assets like equipment or office space).
  • Statutory: A lien placed on an entity’s property as a function of law. A common example for a business is a tax lien, filed for unpaid taxes to a government. Another is a mechanic’s lien, filed by contractors if a business fails to pay for the services they provided.
  • Judgment: A lien placed on an entity’s property by a court order, usually to pay the plaintiff of a successful lawsuit.

Next, we’ll talk about the options for how to check for liens on a business.

‍

In terms of how to look up liens on a business, there are a few different ways to do it.

1. Use a dedicated business identity platform like Middesk

The easiest way to search for liens on a business is to use a platform like Middesk. Middesk queries information from several sources at once—including Secretary of State portals, where you’d likely have to search for this information anyway. 

One advantage of this is that you don’t have to search each source one by one. Another is that, at the same time as getting information on liens, you can get numerous other pieces of information about a business that are needed for verifying its identity or defining its risk profile. These include registration details, industry classification, litigations, bankruptcy filings, tax information, watchlist screening, adverse media coverage, and more.

2. Search Secretary of State offices

Most information on US businesses—including business liens—is kept by state governments in their respective Secretary of State offices. The most efficient way to search for a lien on a business at a Secretary of State office is by using its online portal. But another option is to download a UCC-11 form, fill it out with the business’s information, and then mail it to the Secretary of State office in the business’s home state.

There can be some pitfalls with this strategy, though. One is that whether or not you find the information you’re looking for can depend on things like whether the lien was filed at the federal/state level or the county level, where the business is incorporated, and where the actual property the lien is placed on is located.

Complicating this is the fact that there isn’t a government-provided way to search all Secretary of State offices at once, so you’ll have to search them one by one. And they all work a bit differently because their interfaces aren’t standardized. Finally, many require registering for an account, and sometimes paying a fee for each search conducted.

3. Search state or county recorder’s offices

If a Secretary of State office doesn’t have a record of a business lien, then a state or county recorder’s office might. Some states (such as Colorado, Mississippi, Illinois, and South Carolina) have developed centralized lien databases, making it easier to find a state tax lien on a business. Other states record liens at the county level; again, this complicates the search because where a lien is filed can depend on where the business operates, where one of its owners lives, or where the property claimed by the lien is located.

Like with Secretary of State offices, there’s no official way to search all state or county recorder’s offices at once. And requesting information—or even hard copies of documents—may require account registration and/or cost money. So this can be an expensive and time-consuming process.

4. File a Freedom of Information Act request with the IRS

As the central tax authority for the US, the IRS has a database that automatically registers all tax-related liens from all US states and territories. This Automated Lien System (ALS) is available to the public through an online, fax, or mail request made under the Freedom of Information Act. As of January 1, 2023, there is no fee charged for this request.

The IRS notes that this database doesn’t include federally-issued tax liens, so the data may be incomplete or inaccurate. Also, the database comes in pipe-delimited text format on a CD, so you’ll need some way to read that medium. And keep in mind, this only offers tax lien data, and doesn’t provide information on other types of liens.

Search for business liens the easy way with Middesk

In addition to drawing information from other official sources, Middesk’s Business Verification solution draws information directly from Secretary of State offices in all US states and territories. It contains over 91 million profiles of US businesses, and information on each of them is updated as often as every 2 hours. Middesko offers reliable and accurate information needed for business verification and risk assessment.

‍Get in touch with our sales team to schedule a live demo.

No items found.

Stay in the loop

Share article

Related articles

No items found.