In brief: 

• Searching for UCC or federal & state tax liens involves looking for legal claims against a business or business owner’s property due to unpaid debts
• Lien searches are a component of Know Your Business (KYB) processes, as they can signal enhanced risk of onboarding a business that’s in financial trouble
• Liens can be found at state Secretary of State (SOS) offices or state/county recorder’s offices, ordered directly from the IRS, or retrieved automatically from a software like Middesk when running business verification checks

Whether a business has UCC tax liens filed against them is a significant risk factor B2B onboarding for lendings and Financial Institutions (FIs). A business in debt could be at risk of losing property or other assets critical to its functioning, or have trouble getting additional financing if it doesn’t have enough collateral to offer to another lender. 

Determining whether a business you want to onboard as a customer has any liens filed against them is a critical top-of-funnel step in the Know Your Business (KYB) process. Lien information is made publicly available by the IRS and Secretary of State (SOS) offices, but it’s difficult to automate lien searches at scale if you onboard a lot of new businesses.

A UCC lien search is the process of looking up whether an entity (a person or business) has any Uniform Commercial Code (UCC) liens filed against it. A UCC lien is a legal notice from a creditor laying claim to collateral from a borrower on a loan if the borrower defaults on the loan.

Basically, if a person or business takes out a loan and then later defaults on it, UCC liens determine the order in which creditors can seize the borrower’s collateral to repay the debt. A UCC lien can also indicate which assets are to be prioritized for seizure in the event of a default.

What is a federal or state tax lien search?

A federal or state tax lien search is a check to see if an entity has any tax liens filed against it by a federal or state government. These liens are documents allowing a federal or state government to lay legal claim to an entity’s assets if said person or business has unpaid taxes. 

In short, UCC liens are claims to collateral by private creditors when an entity owes a debt to them via a loan. Federal and state tax liens are claims to property by governments when an entity owes debts to them in the form of unpaid taxes. Businesses in the U.S. typically have liens filed against them by the IRS.

When it comes to KYB, a UCC or tax lien search isn’t so much about identity verification as it is about customer due diligence and risk management. An outstanding lien against a business could be a significant risk indicator, as it could signal a business is in debt and is in danger of losing assets if it doesn’t repay its debts. 

Why UCC lien searches are essential during onboarding

The assets being held as collateral could be critical to the business’s operations, which could be detrimental to you if you choose to onboard them. Collecting the data you need to perform due diligence and put together a lien data report is critical to mitigating your risk in these situations.

Even if the business is eventually able to deal with the lien by paying off its debts, an active lien could still be a risk factor in the meantime. It could hamper the business’s efforts to secure additional funding. 

It also signals to a lender that they aren’t first in line to collect collateral from the business if it defaults on its debts. The lender may not see any remaining collateral that they’re interested in, or they may fear that the business will run out of assets before it’s their turn to collect on what they’re owed.

In short, a UCC lien is a warning sign that the business won’t be able to fulfill its client or partner obligations in the near future. That might make the business too risky to start or continue a relationship with.

Why notification of a new UCC lien is essential for ongoing compliance

A business may be all clear of liens during onboarding, but what happens if they later have a lien filed against them? Do you want to wait for that business to tell you there’s a lien against them (because they likely won’t make that a priority). 

Instead, you should also set up ongoing monitoring for lien filing to get notified when there’s a change in the business lien status.

To learn more, check out our webinar on how leveraging UCC lien data helps lenders spot hidden risks, protect collateral, and stay first in line.

There are a few places where you can conduct a tax lien search or UCC search, and most are official U.S. government agencies. However, the level of government with which liens are recorded differs from state to state.

For some states, liens are recorded at the federal or state level, so searches for them don’t need to be quite as precise. For other states, liens are recorded at the county level, which can make searches trickier depending on how a lien was filed — you need to know in exactly which county the debtor lives or does business, or where the collateral property is actually located. So you may need to search in multiple places before you find an applicable lien.

To help make it easier, these are the 5 ways you can do a lien search in the U.S.

1. Use a dedicated lien search tool

Image Source: Middesk Credit Assessment

Third-party tools like Middesk’s Business Underwriting solution, are able to pull business filing data — including UCC tax liens — directly from official (government) sources. They can also search multiple databases simultaneously, pulling additionally-useful business verification information that’s useful to other components of your KYB process, like EIN/TIN verification, watchlist status, and more.

This takes care of a lot of the heavy lifting in terms of determining exactly where the lien was filed. These tools also provide more flexibility in how liens can be searched for, including by businesses names, individual names, addresses, filing numbers, filing types, filing statuses, and so on.

2. Use a lien search API tool

While lien searches can be conducted manually, the fastest way to do a UCC or tax liens search is to use an automated tool. A solution such as an API can quickly aggregate data from multiple sources, saving time that would otherwise be used checking individual sources one by one. 

Typically, you would enter the legal name of the businesses you want to search for, and then specify you want to search for a lien. 

3. Search business records at a state Secretary of State (SOS) office

Most businesses in the U.S. are registered at the state level, so their information will be recorded with a state SOS office. Each SOS office has their own online portal and database that allows for searching business filings to get information on businesses registered to operate in the state. This includes UCC liens and federal/state tax liens.

You can also try a UCC-11 search. This involves downloading a UCC-11 form – an official request for UCC information – from each state’s Secretary of State website (here’s an example of the one from New York). Then it requires filling out the form, sending it to the SOS office for that state, and waiting for documents to arrive.

This can be a slow process, and it often requires signing up for an account and/or paying fees.

4. Look for liens on a state or county recorder’s office website

Another place you can search for tax liens is at a state or county recorder’s office (or its website). This can be a complicated process, though, as where liens are recorded can differ depending on state law. 

Some states – such as Colorado, Mississippi, Illinois, and South Carolina – have centralized tax lien registries that simplify the search. In other states, however, tax liens are recorded at the county level. And which county a lien is recorded in can differ depending on things like whether the debtor is registered as a business or one of its owners. So the lien may be where the owner lives or where the business operates, or even where the collateral assets are located.

Again, this can be a painstaking process that may require paying money to get hard copies of documents (if this is necessary).

5. Get a list from the IRS via a Freedom of Information Act request

The IRS has an Automated Lien System (ALS) database that automatically collects and files tax liens from all 50 states as well as DC. It’s possible to get a copy of this database by submitting a Freedom of Information Act (FOIA) request to the IRS. This can be done online, by fax, or by mail, and they have clear Freedom of Information Act guidelines to follow to submit your requests properly.

Warning

As of January 1, 2023, there are no additional fees for requesting this information. However, the database doesn’t necessarily have all legal information related to federal tax liens, so the data could be incomplete or inaccurate. It’s also provided on a CD, which isn’t a very commonly-used medium these days, so you may have to find a device that can read the information.

If you’re trying to search for tax lien records and/or UCC lien records at scale, an automated third-party KYB search service is the way to go. Here are some leading industry options:

1. Best for underwriting risk assessment: Middesk

Middesk helps businesses mitigate underwriting risk by identifying key risk signals and filtering out high-risk businesses. Middesk Assess helps businesses do this efficiently by searching for UCC, federal, and state tax liens across all of the primary government sources. It provides information on the debtor, creditor, and collateral, when the lien was filed and when it lapsed (or will lapse), where the lien was filed, whether the lien is active or not, and more.

In addition to lien data, Middesk provides other critical KYB verification data, including bankruptcy status, business address risk, SOS business registration changes, EIN/TIN matching, watchlist status, and more.

To top it all off, Middesk Signal can immediately score the risks of onboarding a business right at the top of your onboarding funnel with only 2 inputs: business name and address.

Where Its Data Comes From: Middesk uses a mix of authoritative data directly from the state SOS offices from all 50 states, the IRS, business licenses, and tax status verifications, as well as alternative data to provide deeper risk insights, including web presence, IP address behavior, online reviews, business email and phone number consistency, and more.

2. Easiest to use for lien search only: First Corporate Solutions

Image Source: First Corporate Solutions

First Corporate Solutions has an Online UCC System that allows for searching for liens by debtor name (including partial names and wildcards) or file number. It also allows for filtering results by name, address, city, and filing type (UCC, tax, judgment, bankruptcy, etc.). Finally, it allows for printing reports or copies of documents. 

Where Its Data Comes From: State filing offices

3. Best for recurring searches: CSC Global

CSC Global’s UCC Search service allows for searching all jurisdictions for UCC filings. Its keyword-logic search engine allows for finding names by variations, misspellings, or other errors. It also allows for recurring, time-based searches to automatically get updated information on certain (groups of) liens.

Where Its Data Comes From: Unspecified

4. Best for: real property search and recordation: Wolters Kluwer

Image Source: Wolters Kluwer

‍Wolters Kluwer’s Solutions iLien system can search for UCC liens, federal & state tax liens, real property documents, and many other types of business documents useful in KYB risk assessment. It allows for searching across multiple jurisdictions through the web app or by phone, fax, or client/server software.

Where Its Data Comes From: Uniform Commercial Code (UCC) public records from every state and thousands of counties

Liens can provide clues as to what financial and/or operational shape a business is in before onboarding it. But they’re far from the only pieces of information and documentation a company should look up when assessing a business’s potential risk. 

This is why Middesk’s Business Verification solution and Business Underwriting tools provide a great deal of extra contextual data to help you make more accurate B2B risk evaluations. This includes bankruptcy status, litigations, registration status, tax ID, watchlist presence, industry classification, Articles of Incorporation, digital footprint, and more.

Schedule a demo to learn how Middesk can help you verify B2B relationships and mitigate lending risk by identifying risks early by completing UCC and tax lien searches.