We went down the path to purchase a used tractor and found the process a bit different then purchasing a used vehicle. Most farm tractors don’t come with a registration or title. Therefore, it’s a bit more tricky to find out if there is a lien against the equipment.
The best way to find out if there are any outstanding liens or debts owed for which the farm tractor is collateral is to do a lien search. In the United States a search would be conducted under the Universal Commercial Code through the Secretary of State, in your state. In Canada, a lien search could be conducted through your Provincial Government.
The tractor’s serial number and the correct legal name of the current owner/seller, which can be an individual or business name, will be required. The search must be completed in the state or county where the current owner is located – not where the sale is being completed.
Seems relatively easy and it is! But as a buyer of a farm tractor or equipment, you need to protect yourself and your business from potential losses because of outstanding liens.
Therefore, we’ve outlined some important steps to follow below. You don’t want to find find out one day that there was a lien on your tractor and now you are potentially liable for the past owners debt. Read on to find out why.
Step #1 – Ask the Current Owner if There are Any Outstanding Liens
If you’re dealing with a reputable seller they should be forthcoming and tell you if there are any liens outstanding on the farm tractor. And, if there are, the total dollar value owed and outstanding should be disclosed, as at the date of your inquiry.
If loan payoffs are a requirement, the seller should provide the following information:
- Name and contact details of the creditor, like a bank or lease financing company;
- The total dollar amount due, as at the date of your inquiry; and
- Instructions on how the payoff needs to completed.
Sometimes sellers don’t have all this information organized. And other times you might be dealing with a seller that isn’t as forthcoming with the information.
You need to trust your instincts when someone isn’t as forthcoming with information. You may not want to move forward with the purchase. But if you do, it would be in your best interest to conduct a lien search.
Step #2 – Conduct a Lien Search
In the United States a search would be conducted under the Universal Commercial Code through the Secretary of State, in your state. And, remember, the search must be completed in the state or county where the current owner is located – not where the sale is being completed.
It is also important to note that the Universal Commercial Code search (also referred to as a UCC lien search) is of the current owner of the farm tractor. You will need to have the correct spelling and legal name of the current owner, or the search results may not be accurate.
As we mentioned earlier, the search must be completed in the state or county where the current owner is located – not where the sale is being completed.
Below is a recap on the above as well as some nuisances to keep in mind with the different type of sellers.
Individual Name or Sole Proprietors
- Search the state where the customer resides.
- Whether an individual or sole proprietor, always identify customers by their correct legal names.
- Never use trade names or “doing business as” name.
- Request copy or to view the sellers valid driver’s license or Social Security card or other form of identification (Requesting this type of documentation may seem impractical, but it’s the best way to ensure that your getting their correct legal name.
Corporation, Limited Liability Company (LLC) or Limited Partnership
- Search in the state where the business is incorporated or organized.
- Use the name that is listed on the Articles of Incorporation.
General Partnership
- Search in the state where the partnership has its principal place of business and in the state(s) where its general partners reside.
- The correct name of a General Partnership is the name identified on its organization document or partnership agreement. You may request to see a copy to confirm the legal spelling of the name.
I think the most important reason to conduct a lien search is to ensure that a previous lien doesn’t get transferred to you. Because liens may stay on the farm tractor even if you weren’t aware of them when buying the equipment! This is where steps #3 and #4 come in handy. Read on!
Step # 3 – Get Payout Instructions Directly From Creditor or Lien-holder
You should be in direct contact with the seller’s creditor or lien-holder (i.e. bank or lease financing company). By direct contact, it would be best to communicate over email so you know you are dealing with an established company.
The lien-holder should provide written confirmation that the lien will be released upon payment of an agreed upon sum of money from the sale of the tractor by a specified date.
If all transaction details are acceptable by the lien-holder, seller, and you – the purchase transaction can move forward.
Step #4 – Paper Trail the Sale + Obtain a Lien Release Letter
A lien release is used to cancel a lien that has already been filed. It’s most often used to release a lien claim after a lien claimant receives payment. This action releases the claim of lien from the property in question. A lien release is also known as a release of lien, cancellation of lien, or a lien cancellation.
The lien-holder or creditor should specify how much money they require to release the lien. To paper trail the sale properly so there is not confusion it would be best to pay the lien-holder with one cheque. And with a separate cheque pay the remaining money owed, if any, to the seller.
Don’t pay the seller all the funds if there is an outstanding lien. Pay the lien-holder directly; either by check or wire transfer. Also, I would never recommend paying directly by cash, as there is no way to prove payment.
It is very important to receive a lien release letter because if you purchase a farm tractor without obtaining one from the lien-holder or creditor, the lien will continue on your farm tractor following the purchase.
This is very disturbing because it is possible for the lien-holder to foreclose on your tractor at a later date. You’d be out of pocket for some or all of the funds you provided to the seller.
Here’s an example of how messy a situation could get if a sell doesn’t fully disclose all liens on the tractor.
A individual wants to sell you a used tractor for $35,000. The seller informs you that there is no lien on the used tractor. The seller shows you a letter stating that s/he paid off X Credit Company or X Lien-holder for the used tractor. You have no reason not to believe the seller.
But the seller forgot to tell you about a blanket lien held by a local bank for an operating loan in place for 10 years. If your seller gets into financial trouble or goes bankrupt, while the lien is still in place, the bank will contact you for the asset used as collateral against the operating loan.
You will have to pay the bank and may have no recourse against the
seller.
There are always some risks when purchasing used equipment but there are steps you can take to minimize some of them. And by following some of the best practices we’ve outlined above will also help. We learnt these lessons along the way and thought they’d be helpful to share.
About the Uniform Commercial Code in the United States
According to the State of Texas, the Secretary of State website the Uniform Commercial Code allows a creditor, typically a financial institution or lender, to notify other creditors about a debtor’s assets used as collateral for a secured transaction by filing a public notice (financing statement) with a particular filing office.
The Office of the Secretary of State is the central filing office for the receipt, filing, indexing and recording of financing statements and other documents provided for under the Uniform Commercial Code and certain other lien notice statutes.
Where You Can Conduct a Lien Search
Below are a few places where you can conduct a lien search – either in the United States or Canada. Similar to the fees listed on the State of Texas Secretary of State website, the fees for a lien search could range between USD$15.00 to $USD30.00. If you engage a lawyer or paralegal to help you it will be a lot more money.
- In the State of Texas, you can conduct a lien search HERE.
- In the State of California, you can conduct a lien search HERE.
- In the Province of Ontario, you can conduct a lien search HERE.
- In the Province of British Columbia, you can conduct a lien search HERE.
The best way to protect yourself – always do a lien search.
GOOD TIP
Inspection Checklist for Buying a Used Tractor
If you’re looking in the market for a used utility farm tractor whether it’s your first tractor or you’re second or third, it’s always a good idea to have a list of questions formulated to ask and a list of items to inspect on the tractor so you can stay focused. It might be helpful to read our article on “What to look for when buying a used tractor” and download the inspection checklist.