A Lender’s Collateral Versus the Power of a Landlord’s Lien

By: Burton "Chip" Stacy, Jr.

Depending on a given state’s law, a landlord can involuntarily possess a tenant’s personal property and can, as a result, sell such property. How can a lender prevent this from happening?

By way of example, a lender completes a clean UCC and tax lien search and makes a loan to a borrower so the borrower can finance its operation. The lender secures the loan with the borrower’s equipment, owned free and clear by the borrower. The borrower, a tenant with its equipment located on the leased premises, thereafter defaults on its rent payments to its landlord, and the landlord claims a lien on the same equipment that the lender claims as collateral for its loan. In this scenario, the landlord may go further than attaching a lien to the equipment—the landlord can actually seize the equipment.

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