Hidden Liens Report, a project of the Commercial Transactions Committee of the Business Law Section of The State Bar of California
Introduction

Attorneys and non-attorneys alike are quite familiar with liens. The most frequently encountered liens arise from a limited category of circumstances such as liens against real or personal property to secure loans, wage garnishments, liens imposed for failure to pay taxes and mechanics' liens. However, liens may be imposed in a variety of circumstances, and in California the power to create liens is found in several different chapters of the California statutory codes. Not surprisingly, the process of creating liens varies and determining the relative priority of these liens can be complicated.

Many practitioners are aware of the types of liens created under Division 8 or 9 of the California Commercial Code, real property liens, judgment liens, and liens created under federal statutory schemes (e.g., aircraft, copyrights). Notice of the existence of many of these types of liens can be obtained from a search of public recording systems, such as the Secretary of State's Office, real property records, or the U.S. Copyright Office. There are, however, another group of liens that are not evidenced in a public record, which makes uncovering them especially difficult for debtors and secured parties alike. Often, these liens are possessory in nature which makes them difficult to discover unless a practitioner knows to do the required due diligence to discover them. These so-called "hidden liens" are the subject of this report.

We are not aware of any generally available comprehensive compilation of the types of hidden liens that exist under California and federal law. This information void has a mystical quality to it as many practitioners do not even attempt to become familiar with the different types of liens that exist in part because of the expanse of the subject and the perceived unlikelihood of encountering a hidden lien that is material. It is often the case, therefore, that transaction parties and their attorneys are surprised to learn of a "hidden lien" that interferes with the parties' interests including the priority of a security interest arising under Division 8 or 9 of the California Commercial Code. This report represents a continuing effort by the Commercial Transactions (formerly UCC) Committee of the Business Law Section of the State Bar of California (the "Committee") to demystify "hidden liens" by identifying, indexing and describing liens that can be created under federal or California statutes other than pursuant to a typical secured loan transaction.1

The Table of Contents of this report contains an extensive list of liens that the Committee has assembled by reviewing federal and California statutes. These liens fall into six broad categories:

A. Liens arising in sales transactions,

B. Liens for performance of services,

C. Liens arising in litigation,

D. Agricultural liens,

E. Tax and other governmental liens, and

F. Liens on particular types of personal property.

The liens identified in bold face on the table of contents are discussed in detail in the balance of the report.2 The Committee identified the liens that are most likely to be encountered by transaction parties for discussion in this report. Placeholder language has been included in this updated report for the liens that have not yet been summarized, but which the Committee intends to summarize in future updates of this report. The discussion that follows for each lien identified in bold face includes the manner in which the lien arises, attaches and is perfected, how priority is determined, recommendations for identifying and protecting the secured party against the lien, the types of obligations that can be secured by the lien, and the types of collateral and classes of persons that are subject to the lien.

A few words of caution are appropriate. The hidden liens were created under many different types of laws, by different legislative bodies (the U.S. Congress and California legislature) and at different times. Therefore, there certainly are intricacies and nuances that will be grasped only by experienced practitioners in the specific area, and by writing this report, we do not profess to be such practitioners. Our approach has been to provide an introduction to the hidden lien based upon what could be discerned directly from a plain statutory reading and, in some situations, any leading cases in the area. In addition, a byproduct of the sheer breadth of this report is that the lien analyses were prepared at different times. Although we have performed considerable review and updating, the analysis in a particular area may not necessarily provide the most current information as of the date of this report. While we believe this report can serve as a starting point for identifying hidden liens that may arise in certain transactions, it should not be considered a definitive authority on these subjects.

Finally, the Committee gratefully acknowledges the Insolvency Committee of the Business Law Section of the State Bar of California and the Agribusiness Committee of the Business Law Section of the State Bar of California for their contribution to the completion of the report.

Endnotes

1 Therefore, this report does not discuss liens arising under Revised Articles 8 or 9 of the Commercial Code, liens on real property, aircraft and copyrights (except as specifically set forth herein). Back

2 This report will be updated periodically to include discussions of those identified liens not analyzed in this draft, as well as other liens that members of the Committee may identify in the future. Back

II-A. Liens Arising in Sales Transactions / Table of Contents