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Ed Johnson
Ed Johnson, HR & Business Operations Consultant
Category: Finance
Satisfied Customers: 10760
Experience:  Central Michigan University, MSA Candidate; Global Compensation Operations Mngr; AA Degree Lib Arts
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How can I file a ucc-1 lien and have all my assets

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My parents are going to foreclose on a second home. I want to file a ucc-1 lien against them. I want to know once this is filed, will ALL of their assets be protected? I want to make sure that their retirment accounts as well as cash on hand is protected from the bank that they are foreclosing on. How do I go about filing this lien and protecting what little assets they have left?
Submitted: 7 years ago.
Category: Finance
Expert:  Ed Johnson replied 7 years ago.

Dear Jill,

I do not know where you are getting the term UCC-1 lien. But the UCC-1 is not a lien, per se. It is a financial statement that sepcifies and protects first lien rights of a person who has a securable interst in the property, and already has a lien in place, incase the owner goes into bankruptsy. The person who files the financial statement along with thier lien or files it as an amendement to an already existing lien has priorty in collecting should the owners default or go into bankrupsy.

Please view this summarized description of a UCC-1 filing based on information obtained from Blacks law Dictionary.

A UCC1 is a Financing Statement (Ucc-1) listing the type of collateral securing the loan, and its location, in a designated filing place, generally the office of the Secretary of the State or a county recorder's office. The lender's financing statement gives the lender priority status ahead of creditors filing subsequent liens, and is valid for a five-year period. The filing date is recorded, and the lender's documents are assigned a file number. These documents contain a detailed record of the collateral pledged or taken by the lender, establishing the lender's claim against assets by the borrower in event that the borrower defaults or goes bankrupt.

So in answer to:

Will all the assets nbe protected? More than one creditor may file a UCC1. So to the extent that you are in first, second or third position, only the assets listed in your statement are protected. Assests not listed are not protected.

You state that they are forclosing on a bank. I think you may have this reveresed. It would be rare for a private individual foreclose on a bank. Generaly a bank forlcoses on property held by a debtor.

Your lien does not protect property. Before you can file a lien you need to have a vested interest in the property being secured. This can be in the form of a judgement in your behalf, a contract for debt that they owe you, and you file the lien to secure the debt, etc. You are not able to file a lien, and hence no UCC! fiancing statement unless you have a contract of debt or other debt instrument of some kind. For example:

  1. Mortgate for a home
  2. Credit card debt, where now, credit card companies are now allowed to file liens against homes and personal property in order to secure, otherwise non-secured debt.
  3. car loan
  4. contractor who has a contract to repair the home
  5. Personal debt where you loand money to them and they offerd equity in property and assets they own. this can include bank accounts.

The botXXXXX XXXXXne, is that without some sort of debt instrument, you will not be able to file a lien.

If you want to protect non-secured debt from debtors, the best approach is to have a special needs or spendthrift trust set up for you or someother beneficiary in the family. Such a trust would provide a measure of protection agains bankruptsy and foreclosure.

A bank is not going to be able to take assets othe than what is secured by the debt instrument already, without a court judgment.

Foreclsorue laws in your state allow for deficiency judgements, so they could conceivabley go after any short fall if they cannot get the money out of any property they foreclose on.

http://stopforeclosure.com/Illinois_Foreclosure_Law.htm

 

 

Ed Johnson, HR & Business Operations Consultant
Category: Finance
Satisfied Customers: 10760
Experience: Central Michigan University, MSA Candidate; Global Compensation Operations Mngr; AA Degree Lib Arts
Ed Johnson and 2 other Finance Specialists are ready to help you
Customer: replied 7 years ago.
Maybe I wasn't clear in the way I worded my question. They are going to stop making payments so yes, the bank will foreclose on them. However, I want to protect the cash assets that they have. They owe more on the property than the bank will be able to sell it for. Probably at least $100,000. The bank could come to them and force them to pay the $100,000 difference. This is why my company would file the ucc-1 lien against my parents. I would file this now, before they quit paying the mortgage. It is in good standing now. That way, the bank will see this lien and hopefully not come after them. Please let me know if this is right. I guess that is my question.
Expert:  Ed Johnson replied 7 years ago.

Dear jill,

On what basis will you file a lien. AGAIN, their is no ucc lien, only a UCC1 financial statement that is filed with the states attorney general to secure specified assets with an already filed lien.

What is your basis for the lien. What debt does your parents hold with your company? YOu have to file a chattel or mechanics lien first in order to file a UCC1 statement.

The best way to shelter the non secured assets, is through a trust.

By filing a form UCC!, you can make an already existing lien to be a first priority lien.

 

Customer: replied 7 years ago.
ok, so your answer to protect their cash assets is to put them in a trust. Once forclosure proceedings have started and as long as their cash is in a trust, the bank can not get any of that money? Answer that and I'll leave you alone for the night. I'll accept your answer. Besides, I'm trying to watch the Cubs game!
Customer: replied 7 years ago.
Nice profile....are you single? :)
Last question, promise.....
Expert:  Ed Johnson replied 7 years ago.

Dea Jill,

I see you may be login for a foolproof strategy for protecting your parent's assets against a deficiency judgment from the foreclosure.

My disclaimer is that there is no foolproof plan.

let me explain:

Attempts to transfer assets to hide them from creditors is considered fraud. Now, most people are reluctant to claim Fraud. To avoid this, the courts allow for a look back period. This look back allows a creditor to make the charge that there was an attempt to hide assets. This is determined by the timing of events.

lets take each of the options you have to protect the assets in turn.

1. You mentioned a lien solution: In order to file the UCC-1 form and to have your lien in first place, you have to have a lien. Now if no debt relationship exists, you would have to create one. However, in this instance you are a family member, and it is apparent that no debtor relationship exists. To create one where one does not exist, to enable you to file a lien, would be considered tantamount to fraud. You could conceivably legally actually loan your parents money equivalent to the assets you seek to protect, and they can in the contract pledge these assets as collateral. This would allow you to file the lien you seek, and to subsequently file the UCC-1. But if this is happening within a few weeks or months up to a year, of the planned foreclosure, it could be viewed as fraud. I do not see this as an option. It would be better for you to simply lend them the money to bring house payments current or sufficient capital to recap the loan. If you were to legally be able to file a lien and then use UCC-1 to secure first position, you would have to foreclose on your lien (known as perfecting the lien), in order to take ownership of their liquidated assets. (presumably to later give it back to them; but I would put the assets in a special needs trust with them as beneficiaries). Again, this type of arrangement which does not already exist would have the highest likely hood of being perceived as fraud and challenged by the foreclosing bank.

2. The trust: With this plan, it can happen two ways. The parents could put the non-secured assets into a trust for other persons benefits. However once again, if it is done within 6 months of a foreclosure. It is possible to be challenged by the bank and treated as an attempt to hide assets, and there for fraudulent.

The second way, which I favor is, that your parents transfer their assets to you. This means the ownership of current and future assets is transfered to you and then you place them in a special needs trust for the benefit of your parents. Even if done in close proximity of the foreclosure, it is harder to prove that the is was done with purposeful intent to hide assets. An element of risk for looking back is still present, but no so evident.

3. The third way to protect assets is for the parents to simply transfer ownership of the assets. NO trust is involved. There is still a risk of look back.

ALSO NOTE: any transfer of ownership of the assets in excess of 12,000 dollars is reportable to the IRS on a gift tax return. However, unless the value of the transfer exceeds 1 million dollars in a life time, then there is no gift tax assessed.

4. They can file bankruptcy under chapter 7 if they meet the means test: http://bankruptcy.lakelaw.com/meanstest.php

 

Yes...I am single

Customer: replied 7 years ago.
Thank you. This is exactly what I needed. Great advice, thanks so much.

Woo hoo, Cubs just hit a home run. Cubs up 9-6!

You sound like a good catch. Too bad you're so young and you don't live in Chicago!!

Have a great night!

Jill

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