Watch Out For Liens When Purchasing Used Equipment

When it comes to the heavy equipment business, one can expect all the legal complications that may influence the success or failure of the company. One important problem that frequently comes up is liens on construction machinery. Anyone purchasing or selling used construction equipment must be aware of the legal complications of equipment liens and take the appropriate safety measures.

Understand the Basics

Liens Remain on the Device 

The fact that equipment liens are a permanent fixture on the machine, unaffected by ownership changes, is one of the biggest problems with them. Heavy machinery does not have simple paperwork like car titles, which makes ownership and any liens obvious. Usually, the vendor is the target of a lien rather than the machine itself. This could cause issues because the buyer might unintentionally buy equipment that has a lien against it.

Looking for Liens Isn’t Easy

Heavy equipment liens are not always easy to find by simply looking up the make, serial number, or VIN. Liens may be general claims made against all of a seller’s assets, whether they are owned by a company or an individual, permitting equipment to be re-claimed even if it isn’t stated in writing. The process of guaranteeing a lien-free acquisition is difficult because of this legal issue.

How does the financial status of the construction industry affect liens?

Contractor Failures
As per the 2024 report from the U.S. Bureau of Labor Statistics, 65% of contractors experience failure after a decade. Even with this high failure rate, trade union grants, contract upfront payments, and asset-based financing make it relatively straightforward to break into the construction industry. Without careful planning, these financial tools can also result in overstretching.

Mismanagement of finances 

On the surface, many contractors seem profitable, but because of outdated pricing and wrong financial projections, they can actually be losing money. Over the past ten years, the number of private specialist contractors has grown by 20%. There was an increase of 97,218 establishments between Q3 2013 and Q3 2023, of which 58,330 have failed or will fail.

Purchasing Equipment and Financial Dynamics 

The cyclicality of contractor success and failure directly affects the purchase of equipment. To make wise purchasing decisions, contractors must know equipment operation, depreciation, asset-based lending (ABL), ROI, and lifecycle management. Only then, they will be able to make a profitable business.

Legal Basis of Liens 

Due Diligence Obligation 

In this whole process, the buyer bears the burden of exercising due diligence when purchasing used heavy equipment. When buying heavy equipment, there are several measures involved to guarantee a lien-free transaction, unlike with vehicles, which have clear titles. Customers must ensure that there are no burdens on the equipment they are buying. To ensure this, you must check and evaluate the documents provided by the dealer.

What do you need to consider while buying used equipment?

Buyers should also observe a thorough investigation procedure, which entails the following, to safeguard their interests:

Verify Ownership

Check to make sure the seller is the equipment’s legitimate owner.

Lien Check

Request documentation and inquire as to whether the equipment is subject to any liens.

State Incorporation and Residency

Find out the seller’s state of domicile or, if it’s a firm, the state of formation.

Look Up Secretary of State Documents

To locate any filings against the seller, consult the Secretary of State’s Uniform Commercial Code (UCC) database.

Examine the UCC filings

Look over every collateral description in the UCC filings to check if the equipment is covered by them.

Two Cents

Doing your research and being aware of the legal environment is essential to protecting yourself against liens on heavy construction equipment. Whether you are a contractor, reseller, or individual buyer, you can avoid serious financial and legal issues by taking the time to confirm ownership, look for liens, and understand the details of the deal.

MY Equipment stands out as a reliable dealer based in Houston, Texas, that provides used equipment free from legal issues. We prioritize honesty and openness to make sure that you have a hassle-free experience while buying heavy equipment. Explore our inventory NOW and choose the right partner and equipment for your next project.

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