Last week I got an e-mail from a good, long-time, Midwest dealer whom I have known for years. He was very disturbed and rightly so. He wrote, “Mr. Sherwood, I, like most all other marine dealers across the nation, have struggled to get through some very difficult times in our industry. Due to excessive rates from some of the commercial floor plan companies, we have paid all of them off and have been able to set up a line of credit with our local bank. This has worked fine up to now, but our line has been unsecured and to get an extension or increase to get us through the winter, the bank wants some collateral. I certainly understand this and do not have a problem with it. The problem is when our bank does a UCC search on our business there are seven different companies that have filed liens on all inventory or equipment or both. We do not owe any of them! But the liens have not been released.”
He went on, “I don’t think some of the companies that have liens on our dealership are still in existence. I need to contact each and try to get releases. I would bet many other dealers are experiencing the same problem. I wonder how many dealers realize what liens have been filed on their businesses and what those liens cover.”
“It all began when we did some floor planning with different products. Little did I know that the liens were not just against the particular product and, once established, remained even if the balance had been paid in full. Most of the liens covered all inventory, equipment, fixtures, deposit accounts, chattel paper, contract rights, general intangibles, etc. Truly, unbelievable!”
In my response, I asked the dealer which major companies had liens on his business. He answered, “It was ITT, Textron and others. It seems that most of them have been folded into some branch of GE.” He added, “I am getting the mess straightened out, but it has been a real hassle.”
What’s wrong with this picture? The dealer floor plans his products with a company, pays them off, and they still have liens on the business, inventory, and maybe even the dealer’s grandkids. And he does the right thing by arranging for a line of credit with his local bank. But then the liens rear their ugly heads and delay him from getting the credit line extended or increased.
I guess it behooves all dealers to read the fine print on all financial agreements that are signed with financial institutions. And perhaps have an accountant and lawyer look at them, too, before they are signed. I talked to the Vice President of Commercial Loans at the bank where I do business and explained the issue the dealer was having. His first response was, “Tell him to get a lawyer to get the liens released.” He also said “In the state of Wisconsin, (where I live), lenders have a specified length of time in which they must release a lien when the loan or floor plan is paid in full.” He felt that other states would have the same regulation regarding release of liens.
In the future I would recommend that dealers insist on getting a release of lien when a floorplan is paid off.
Has any one else encountered this situation? Let me know.