First, the buyer needs to consider a fixture filing search in any county where the seller may have items attached to real estate that will be the subject of the buyer’s purchase.  These will also typically be voluntary liens between a lender and a borrower, but often the county level search is overlooked.

Second, a buyer needs to consider searching for federal tax liens, typically IRS tax liens.  In addition, a buyer needs to look for state tax liens.  These can include employment tax liens from the state and liens for unpaid sales taxes or unfiled sales tax statements.

Additionally, buyers should consider a judgment lien search. Judgment liens arise when a judgment is filed against a person or entity at the conclusion of litigation.  Tax liens and judgment liens can all potentially attach to personal property, and a buyer of the personal property should find out about these liens before taking title.

Finally, a buyer should consider a litigation search.  This type of search will locate any open litigation matters that involve your seller.  This may be important information to know.  An open litigation matter can become a judgment and thus a judgment lien on assets very quickly.  A potential buyer would want to know about any pending litigation matters so that the buyer can monitor to make sure that these lawsuits don’t turn into judgment liens on the property prior to the buyer purchasing the personal property.

Conducting a thorough search of all potential liens and encumbrances on personal property can help assure a buyer that the buyer is getting what the buyer paid for.

Author: Laura A. Scott (bio)
Phone: 812.452.3557
email: lscott@bamberger.com

At that time, we indicated that we believed that the Third Circuit’s interpretation was faulty, and we expressed hope that the decision would not be followed by other Circuits.  In an important move for lenders doing business in Indiana and Illinois, the Seventh Circuit late last month refused to follow the Third Circuit’s impairment of credit bid rights.  In In Re:  River Hotel Partners, LLC, Case Nos. 10-3597,10-3598, the Seventh Circuit performed its own analysis of the credit bid requirements to the Bankruptcy Code. 

The Seventh Circuit recognized that “in essence, by granting secured creditors the right to credit bid, the [Bankruptcy Code] promises lenders that their liens will not be extinguished for less than face value without their consent.  This protection is important since there are number [sic] of factors that create a substantial risk that assets sold in bankruptcy auctions will be under valued.”  The Seventh Circuit went on to correctly find that the better interpretation of the Code’s credit bid rules is that a Plan of Reorganization that calls for the sale of the Debtor’s assets must include credit bid rights if demanded by the secured lender. 

The Seventh Circuit’s decision now creates a split in the Circuits that the Supreme Court may be called upon in time to address.  In the interim, secured lenders must be mindful that the location of the bankruptcy filing will have an impact on their credit bid rights, and that different post-petition negotiation positions may be required depending on the location of the case.

Author: Andrew C. Ozete (bio)
Phone: 812.452.3582
email: aozete@bamberger.com

First, the buyer needs to consider a fixture filing search in any county where the seller may have items attached to real estate that will be the subject of the buyer’s purchase.  These will also typically be voluntary liens between a lender and a borrower, but often the county level search is overlooked.

Second, a buyer needs to consider searching for federal tax liens, typically IRS tax liens.  In addition, a buyer needs to look for state tax liens.  These can include employment tax liens from the state and liens for unpaid sales taxes or unfiled sales tax statements.

Additionally, buyers should consider a judgment lien search. Judgment liens arise when a judgment is filed against a person or entity at the conclusion of litigation.  Tax liens and judgment liens can all potentially attach to personal property, and a buyer of the personal property should find out about these liens before taking title.

Finally, a buyer should consider a litigation search.  This type of search will locate any open litigation matters that involve your seller.  This may be important information to know.  An open litigation matter can become a judgment and thus a judgment lien on assets very quickly.  A potential buyer would want to know about any pending litigation matters so that the buyer can monitor to make sure that these lawsuits don’t turn into judgment liens on the property prior to the buyer purchasing the personal property.

Conducting a thorough search of all potential liens and encumbrances on personal property can help assure a buyer that the buyer is getting what the buyer paid for.

Author: Laura A. Scott (bio)
Phone: 812.452.3557
email: lscott@bamberger.com

What do you get with a Negative Pledge?  A negative pledge is not a pledge of assets and does not give a lender any rights in the assets being “negatively pledged.”

A lender should keep in mind that a negative pledge is only a contractual obligation of the party signing the negative pledge.  Therefore, third parties who may place a lien on the assets are not bound by the agreement.  In most circumstances the lender would have no cause of action against a third party who places a lien on the assets which have been “negatively pledged.”

It is possible that a lender could have a claim under the legal theory known as “tortious interference” against the third party who places a lien on negatively pledged assets.  For a lender to have a possibility of being successful on such a claim, a third party would need to have actual notice of the negative pledge.  This is why it is recommended that a negative pledge on real estate be recorded in the real estate records of the county in which the subject real estate is located.  Though the recording of the negative pledge does not provide actual notice to a third party, it provides the possibility that a third party will find the negative pledge in a title search.  Negative pledges may be useful to lenders in controlling actions of borrowers.  However, they should not be overvalued by lenders by considering them to be any type of lien on assets or a guarantee of a claim against any third party that violates the negative pledge.

Author: Lori Young (bio)
Phone: 812.452.3560
email: lyoung@bamberger.com