To protect their financial interests in a particular transaction, lenders make Uniform Commercial Code filings, according to the State of West Virginia. A lender may have a financial interest in aspects such as consumer goods, public-finance transactions and commercial equipment. A UCC filing creates a lien on property in the lender’s favor to secure repayment from a borrower, explains the Houston Chronicle.
The UCC provides uniform rules and guidelines for carrying out commercial transactions, states the New York Department of State. A UCC lien occurs when a lender offers money to a debtor, who in turn pledges collateral for the loan, explains Hearst Newspapers. By filing a form UCC-1 Financing Statement with the secretary of state, the lender validates his claim against other creditors or lien holders.
The lien bars the borrower from selling the collateral or acquiring another loan using the same property because the lender retains the right to recover his loan. As a public record, the filing shows new lenders that another lender owns part of the value of the property. However, once the debtor clears the loan, a release filed by the lender clears the property, explains the State of West Virginia. In case of default on repayment by a borrower, the lender is able to use the secured collateral to recoup his funds through foreclosure, sale of the property or seizure, says the Houston Chronicle.