What is UCC-3 Termination Statement?
The Short Answer
UCC-3 Termination Statement explained simply
When a business takes out a loan, lenders often secure that loan with the business's assets. This security interest is recorded publicly through a UCC-1 Financing Statement. Once the loan is fully repaid, the lender files a UCC-3 Termination Statement. This document officially removes the lien, confirming that the debt is settled and the asset is free of that specific claim. It's a crucial step for both the borrower and future buyers, as it clears the title of the asset.
Real-World Example
The Paid-Off Equipment Loan
Imagine a small manufacturing company, "GearWorks Inc.," bought a new piece of machinery for $100,000. They financed it through "First National Bank," which filed a UCC-1 Financing Statement on the machinery. This UCC-1 told the world that First National Bank had a claim on that machinery until the loan was paid.
After five years, GearWorks Inc. makes its final payment. First National Bank then files a UCC-3 Termination Statement. This UCC-3 officially removes their claim. Now, if GearWorks Inc. wants to sell the machinery or use it as collateral for another loan, there's no longer a public record of First National Bank's lien on that specific asset.
Why this matters
For sellers, a UCC-3 Termination Statement is proof that debts tied to specific assets are cleared. This makes your business more attractive to buyers because they won't inherit old debts. For buyers, seeing a UCC-3 confirms that assets they are acquiring are free of prior liens, reducing risk and ensuring clear ownership.
Always ensure all UCC-1 filings are properly terminated with a UCC-3 once a debt is paid. This prevents future headaches and ensures a clean transfer of assets during a sale.
Always ensure all UCC-1 filings are properly terminated with a UCC-3 once a debt is paid. This prevents future headaches and ensures a clean transfer of assets during a sale.
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