FINANCE BLOG

When purchasing heavy equipment, buyers should be familiar with ownership documentation, titles, and UCC filings to help protect their investments. Unlike standard motor vehicles, heavy machinery often lacks a single, definitive document to confirm ownership or identify liens. Instead, buyers must navigate multiple forms of documentation, such as bills of sale, equipment titles, and UCC (Uniform Commercial Code) filings, which can indicate if the equipment is being used as collateral for an existing loan. Discovering this information beforehand is necessary to avoid potential issues down the road.

This blog offers practical information to help heavy equipment owners thoroughly review ownership records, uncover potential liens, and perform proper due diligence before purchasing a piece of equipment. Nothing herein is legal advice, and you should consult an attorney to discuss your specific situation.

Avoiding Ownership Conflicts in Equipment Transactions

Unclear documentation can cause ownership issues when buying equipment. To avoid this, check the following:

• Require Proof of Ownership: In private sales where it is not the seller’s ordinary course of business to sell equipment, always request proof of ownership. Failing to do so could leave you unprotected if ownership disputes arise later. Typically, it is not an ordinary course business to sell equipment by an individual or construction company that operates equipment.
• Verify Document Accuracy: All sale and financing documents should clearly state who legally owns the equipment.
• Ensure Invoices Match Ownership: The seller's invoice should align with the claimed owner of the equipment.

Understanding the Difference Between Titles and UCC Filings

Titles and UCC filings are both essential in equipment transactions but serve distinct purposes:

• Certificate of Title: A title provides legal evidence of ownership. It is often required for motor vehicles or equipment that must be registered with the department of motor vehicles, like trucks or trailers. Titles show who officially owns the equipment and will indicate if there is a lien on the piece of equipment.
• UCC Filing: A Uniform Commercial Code (UCC) filing serves as a public record of a lender’s security interest in the equipment. This filing can include a specific piece of equipment or a broader description of the assets such as blanket collateral arrangements. The lender files the UCC.

Knowing the difference helps buyers verify ownership and uncover potential liens before making a purchase.

Checking for Existing Liens

Your lender will typically investigate the title or UCC records to uncover any existing liens, but lenders do not typically warrant good title to the equipment they’re financing. Ensuring good title is ultimately the buyer’s responsibility, even when purchasing equipment with warranty of title from the seller, such as a warranty bill of sale. A seller’s warranty is only as good as the seller’s ability to back it up. Equipment can sometimes have possessory liens or IRS tax liens, which may not require prior notice or be readily discoverable like standard lender filings. If there are multiple claims on the equipment, it could complicate ownership, financing, or even result in the loss of the asset. Knowing about these potential issues ahead of time allows buyers to avoid unexpected financial conflicts.

Title Transfer and Documentation Requirements

Transferring a motor vehicle title into your name requires proper documentation. While requirements vary by state, for equipment required to have a certificate of title, you typically need:

• The existing Certificate of Title (or a manufacturer’s certificate of origin, in the case of new equipment)
• Invoice or Bill of Sale
• Additional State-Specific Forms, some of which may require notarization

Some states may also require a VIN inspection for motor vehicles, particularly if the equipment is being sold from a different jurisdiction. Lenders often require equipment inspections before financing, ensuring the equipment's condition matches its valuation and title details.

Warning Signs to Watch for in Equipment Purchases

Exercise additional caution when buying equipment from non-traditional websites or social media, as the risk for error or non-disclosure may be heightened as compared to established vendors.

Red Flags to Watch for During the Transaction Process:

• Missing or unclear documentation
• Seller not in possession of the equipment title (or the equipment itself)
• Signs of VIN plate or serial number tampering

Protect Your Purchase with Proper Documentation

By taking necessary precautions, heavy equipment purchasers can mitigate risks, avoid costly disputes, and protect their investments. Clear ownership, title, and UCC filings significantly streamline the buying, selling, and financing process. When all documentation is in order, transactions proceed more smoothly, financing approvals are faster, and risks of ownership disputes are minimized.