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What is an Unpaid Seller Lien?

 

Seller's lienUnder the terms of an unpaid seller's lien, vendors who haven't received full payment for the goods or services that they've promised to their buyers retain an interest in the property. Specifically, they can withhold shipment or repossess those goods in the event that they don't receive payment or have a reasonable expectation that such payment will never occur. 

This simplicity belies some important caveats. Many financial and legal experts have devoted considerable amounts of time, energy and page space to the subject of unpaid seller's liens. It's crucial that those who regularly deal with business-to-business transactions as well as large-scale consumer transactions understand the finer points of this area of the law.

Seller Financing

Everyday consumers most frequently come across unpaid seller's liens in the real estate sphere. In fact, they're a valuable legal aspect of seller-financed home sales. If a buyer can't obtain a mortgage by traditional means, he or she may approach the seller to work out a "seller financing" arrangement. These agreements typically require the seller to place a lien on the home's title until the buyer has paid in full. In the event of delinquency, the seller may choose to sell the property through foreclosures or simply repossess it using the rights conferred by the unpaid seller's lien.

Seller financing is also a fairly common means by which a business owner transfers his or her interest in the firm to a purchaser. It's especially useful for buyers who can't secure an adequate loan or wish to enter into a more favorable contract with the business's previous owner. As with a piece of real property, the "seller financier" retains a lien on the entire property until the buyer has satisfied his or her entire debt. Delinquent loans are discharged through the repossession or sale of the business to which they apply.

Cash or Credit

Unpaid seller's liens are also regularly invoked by business-to-business vendors that sell physical products on credit. Buyers who maintain credit agreements with their vendors have an obligation to remain in good standing. Those who overspend their credit limits or become delinquent may forfeit their rights to delivery of current and future shipments. Insolvent buyers who can no longer afford to maintain credit arrangements must do so as well.

Although it may seem obvious, it bears repeating that vendors can also invoke unpaid seller's liens on shipments for which there was no pre-existing credit arrangement. A vendor that typically makes deliveries after receiving cash consideration has every right to delay such deliveries until it has received full payment. Once a vendor determines or is informed that it will not receive payment for a long-delayed shipment, it may invoke the unpaid seller's lien and cancel delivery of the goods. 

Stopping Goods in Transit

In certain circumstances, vendors may be able to invoke the unpaid seller's lien after making a delivery to a supposedly solvent buyer. If the vendor determines that the buyer has become insolvent or suffered a credit lapse, it may intervene to stop the delivery in transit and have it returned for restocking. Once this has been accomplished, the vendor may withhold the goods until the buyer is able to pay in full.

Resellers' Rights

Whether an unpaid vendor exercises its lien on a shipment for which the buyer's credit has expired or merely ascertains that it will never receive cash consideration for a yet-to-be-delivered load, it retains the "right of resale" over the applicable goods. If the buyer is unable or unwilling to make a full payment on a transaction in which the vendor has invoked the unpaid seller's lien, the seller may treat the transaction as null and void. The goods can then be resold to a different buyer in a future transaction.

The unpaid seller's lien is an important and often-overlooked aspect of commercial law. Although it's implicitly invoked millions of times per year, many vendors are only dimly aware of the full scope of its power. To protect themselves against misunderstandings and potential financial losses, commercial vendors and real estate professionals must understand its intricacies.

* Image courtesy of FreeDigitalPhotos.net

 


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