To remove a UCC-1, you file a UCC-3, which terminates the UCC-1. Once you have paid or settled the obligation, you send a termination demand to the secured party, which has 20 days to send you the UCC-3 termination statement or file it.
For background, see our post on what a UCC lien is and whether you can remove it. A UCC-1 is effective for five years from filing. See UCC 9-515. Although an MCA is structured as a purchase of receivables, the funder’s interest is still an Article 9 security interest because “security interest” is defined in UCC 1-201(b)(35) to include the interest of a buyer of accounts.
How Do You Remove a UCC-1 Financing Statement?
You file a UCC-3, the national Financing Statement Amendment form, and check box 2 for “Termination of Financing Statement.” Once filed, the UCC-1 “ceases to be effective” under UCC 9-513(d). In Pennsylvania, it is filed with the Department of State through its Business Filing System for $84, and online filings can’t include attachments.
Paying the funder does not get the UCC-3 filed. Unlike consumer goods, with business collateral there is no time limit on filing the UCC-3 after payoff. See UCC 9-513(b) (requiring a termination within one month after no obligation remains secured by consumer goods).
What is the Time Limit for UCC-1 Removal?
The 20-day period begins when the secured party receives a signed demand from you. See 13 Pa.C.S. § 9513(c) (“[w]ithin 20 days after a secured party receives a signed demand from a debtor…”). The model statute says “authenticated,” but either way an electronic signature through email likely would suffice, but a phone call would not. If the secured party mails you the UCC-3, it has met its duty, and you must file it.
A demand will work if one of the following four conditions exists under UCC 9-513(c):
- The obligation secured has been paid and there is no commitment to make advances (this condition does not include the sale of accounts or chattel paper);
- The financing statement covered a sale of accounts or chattel paper and the account debtors paid the accounts;
- The consigned goods are no longer in the debtor’s possession; or
- You did not authorize the initial filing of the UCC-1.
The sale-of-accounts exception in the first condition lets the funder argue that no UCC-3 is due until the account debtors have paid the accounts under the second condition, since an MCA funder purchases your future accounts. Once you have paid or settled the amount purchased, there should be a strong argument for termination under UCC 9-513(c)(2). However, we have not found any cases applying that provision to a UCC-1 filed by a merchant cash advance funder, so if you settle, make sure the UCC-1 will be terminated.
What if the Funder Ignores Your Demand to Remove the UCC-1?
You can file the UCC-3 yourself under UCC 9-509(d)(2), which allows a termination statement if: (i) the secured party failed to send or file as required by section 9-513; (ii) the debtor authorizes the filing; and (iii) the UCC-3 indicates that it was filed with the debtor’s authorization.
Why not file first and ask questions later? Because under UCC 9-510(a) a filed record is effective only if the person filing it is entitled to file it under UCC 9-509, so a termination you file while you still owe money is ineffective and could expose you to damages.
What if they don’t comply? UCC 9-625(e) provides for statutory damages of $500 if the secured party fails to comply with UCC 9-513(c), in addition to any damages you incur under UCC 9-625(b) (for example, a refinancing you lost because the UCC-1 was still outstanding). Pennsylvania’s § 9625 sets the same $500. It isn’t much money, but it’s probably enough to put in a demand letter.
Here’s an example timeline:
- Day 0: you’ve made the last payment on your financing.
- Day 1: you send a signed demand under UCC 9-513(c), by e-mail with an electronic signature and by certified mail, listing every file number.
- Day 21 (calendar days, counted from when they received your demand): if nothing has been sent or filed, you file the debtor-authorized UCC-3 yourself and send a separate $500 demand under UCC 9-625(e).
What should my settlement agreement say about the UCC-1?
The settlement agreement should require the funder to file a UCC-3 within a certain number of days after the final payment. That should be less than 20 days; 5 to 10 business days is probably enough. These points come from my practice, not the statute:
- List all of the file numbers and all of the jurisdictions in which the UCC-1s were filed.
- If the secured party of record is an assignee of the original funder, make sure it’s bound to file the UCC-3.
- If the funder sent your customers notices under UCC 9-406, require it to withdraw those notices.
- Give yourself the right to file the UCC-3 if they miss the deadline, so there’s no question whether you gave them the chance to comply with UCC 9-513(c).
- Require a copy of the filed UCC-3 with its filing number, then run a new UCC search to confirm it.
Not sure what’s on file? See my article on how to do a UCC search in Pennsylvania.
Frequently Asked Questions
Can I take my proof of payment to the Secretary of State’s office and have them remove the UCC-1?
No. The Secretary of State’s office (or whichever office accepts UCC filings in your jurisdiction) won’t get involved in the dispute between you and the funder. There’s no appeal process and no sworn statement that removes it. Only a UCC-3 removes it, filed by the secured party or by you after it ignores your UCC 9-513(c) demand.
When the UCC-1 is removed, will it be removed from the UCC search results?
The filing stops being effective on the date the termination is filed, but under UCC 9-519(g) the filing office keeps the record for a year after the date the financing statement lapses, so it may still show up, marked as terminated, until then.
What happens if I do nothing?
The UCC-1 lapses 5 years after it was filed, unless the secured party files a continuation within the 6 months before the lapse date. If they file a continuation outside of that 6-month window, it won’t be effective.
What if I didn’t authorize the filing in the first place?
Under UCC 9-513(c)(4), you can send the secured party a signed demand to file a termination, and it has 20 days to comply. You can also file an information statement under UCC 9-518, but that won’t affect the effectiveness of the UCC-1 filing, so you may have to get a court order under UCC 9-625(a).