Provided by: Jennifer Kirschenbaum, Esq.
March 31, 2022
Question:
Hi Jennifer,
I am purchasing a practice. Why do I care if the prior practice has liens, and what do I do about the liens, if they exist?
Thank you, Dr. T
Answer:
Dr. T, I cannot allow you to pay for assets encumbered by a lien or liens. A lien is a priority interest in the ownership and control over an asset - meaning, if you pay money to A, but B has a lien that is properly recorded as a UCC1, then A does not have the right to transfer the asset to you free and clear. Which, to explain further means, A doesn't have the right to transfer the asset without you owning something that someone else may have a superior claim to. Which, to explain even further means, you could pay money for the asset (let's say the asset here is an x-ray machine), and let's say Henry Schein has a lien on the X-ray machine. You pay money to A for the X-ray machine; Henry Schein has a lien because it financed the X-ray machine. If there is a default in the financing repayment, Henry Schein is within its rights to come and take away "its" X-ray machine.
So, we care if there are liens on assets. We can buy assets that have liens, so long as prior to Closing the liens are paid down and on their way to being removed. We will work through this during the closing process of the transaction. It is completely normal to start a sale process with assets that have liens; we simply have seller pay down the indebtedness as part of the deal process. We are careful in this process to make sure the indebtedness is tied to the lien, and that the lien is to be extinguished before or just after closing (sometimes the UCC3 filing to remove the lien can take a few weeks...).
