Settling Liens Prior to Listing Your Practice
In preparation for listing your practice, there are several steps to consider, but one important step that is often overlooked is settling any outstanding liens against your practice. As you know, “A lien is a claim or legal right against assets that are typically used as collateral to satisfy a debt. A creditor or a legal judgment could establish a lien. A lien serves to guarantee an underlying obligation, such as the repayment of a loan.”
All liens tied to your dental practice must be settled prior to, or at closing. In some cases, the seller can use the proceeds of the sale to pay off outstanding debts such as equipment loans or business loans, which would be settled during the escrow process.
Sellers are often unaware of liens still showing as active. By performing a UCC (Uniform Commercial Code) search liens can be identified. These debts may have already been settled, but the lien holder either failed to file the lien release or filed it incorrectly. For these reasons, I highly recommend performing your own UCC search prior to listing your practice for sale. A “UCC search is a process through which business owners contact the secretary of state for the state in which their business is located and request all the UCC information (related to your practice). In some states, you won’t have to contact your secretary of state’s office at all – instead, you can use an online database for UCC lookup.” For Washington State, visit the Department of Licensing website https://fortress.wa.gov/dol/ucc/ to conduct your own search.
If you find any active liens that have already been settled, simply contact the debtor directly and request that they file a UCC-3 Termination Statement, which is essentially proof of debt termination. And don’t forget to ask for a copy of the UCC-3 so you have documentation to provide to your escrow officer. This is a simple task but can slow down the closing process if not addressed in advance.