We often get asked the question: “When to file?” Keep in mind that when entering a transaction, pre-filing serves as notice to a claim, and can save the party from the expense and hardship of constant diligence throughout the life of the deal. Though it may be true in your business that the majority of deals never actually close, for those that do, the effective date becomes the date of the pre-filing, not the date of the closing! Wouldn’t you rather lock in a place in line (hopefully first!) instead of risking other secured parties jumping in ahead while the deal is being worked? Not only do you secure your position through pre-filing, but you avoid the need for update searches as the deal is worked.
This sometimes spurs more questions. A recent one we fielded relates to an interesting scenario: Three parties are all pursuing a transaction. The first two parties each file pre-filings, but it is a third bank that closes. That bank needs the first two parties to terminate their filings. What should the bank do? While there are various ways to handle this, one option is for the bank to stipulate that the debtor must tell the first two parties to terminate, with a notice, say 20 days. After that notice, if the parties have not terminated, the debtor is authorized to terminate the filings itself.
As always, CT Lien Solutions is here to advise on your public records searching and filing queries. Have a question? Email it to info@ctliensolutions.com.
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