What is a 'Blanket Lien'

A blanket lien is a lien that gives the right to seize, in the event of nonpayment, all types of assets serving as collateral owned by a debtor. A blanket lien, theoretically, gives a creditor a legal interest in all of the debtor's assets. Blanket liens provide maximum protection to lenders, but minimum protection to borrowers. Borrowers can potentially lose all of their assets if they default on a debt subject to a blanket lien.

BREAKING DOWN 'Blanket Lien'

The Uniform Commercial Code (UCC) regulates the concept of liens for businesses. In particular, UCC Article 9 provides definitions and key language with respect to the application and treatment of liens. However, the concept of blanket liens or "all assets" liens, has undergone legal challenges in recent years due to some perceived ambiguity in UCC Article 9. It would seem that UCC 9-108, with its requirement that collateral is "reasonably" identified, rejects "all assets" in an enforceable debt agreement, but cases have been brought to court anyway by creditors seeking claims on all assets of delinquent borrowers.

While it may not be clear-cut how blanket liens are defined in the private sector, there is no question that the Internal Revenue Service (IRS) reserves that right to apply an "all assets" lien when individuals do not pay their taxes. A federal tax lien "attaches to all of your assets (such as property, securities, vehicles) and to future assets acquired during the duration of the lien," warns the IRS on its website.

Good Lien Agreement Practices

Both creditor and borrower have no interest in spending time and money in court arguing over what is and what is not collateral in the event of default. This is the reason that attorneys recommend that lien agreements contain as many specific details as possible on assets that are to be collateralized. UCC Article 9 serves as a guide for the drafting of lien language, but to avoid confusion between the parties and provide clear details in the UCC-1, the financing filing submitted to a Secretary of State for public posting, it is a good practice to individually describe the assets subject to lien.

RELATED TERMS
  1. Voluntary Lien

    A voluntary lien is a contractual agreement made at the assent ...
  2. Tax Lien Certificate

    A tax lien certificate is a claim against property that has a ...
  3. Mechanic's Lien

    A mechanic's lien is a legal guarantee of payment to builders, ...
  4. Financing Statement

    A financing statement is a document outlining the financing agreement ...
  5. Lien Waiver

    A lien waiver is a document from a contractor or other party ...
  6. Non-Possessory Lien

    A non-possessory lien is a legal claim intended to secure payment ...
Related Articles
  1. Taxes

    Investing in property tax liens

    Investing in property tax liens can be a viable option for experienced investors who are familiar with the real estate market.
  2. Taxes

    IRS Asset Seizures: Could It Happen To You?

    If you can't pay your taxes, know that the IRS has many avenues for collecting what you owe.
  3. Personal Finance

    How to Sell a Car With a Lien

    Vehicle owners wondering how to sell a car with a lien on the certificate of title have four options to both remove the lien holder and transfer ownership.
  4. Investing

    Attention Home Buyers: Why You Need a Lawyer

    Property transactions are complex and subject to specific state/local rules. Hiring a lawyer can simplify the process.
  5. Personal Finance

    Car Title Loan Requirements

    Here's a list of what you need to qualify for a car title loan. Most important: having sole ownership of your car with no liens.
  6. Personal Finance

    How Your Credit Can Affect Homeownership

    Keeping your credit clean is important when buying, qualifying and paying for a home.
  7. Investing

    Protect Your Home From Medicaid Liens

    Plan ahead for long-term care needs to protect your home and your estate.
  8. Insights

    The Snuggie's Complicated Tax Status is Finally Resolved

    Is it a blanket? Or is it a garment? The U.S. Court of International Trade has weighed in.
  9. Investing

    Understanding 401(k)s and All Their Benefits

    A quick guide to understanding 401(k) advantages, from tax savings to shelter from creditors.
RELATED FAQS
  1. How long does it take for items to show up on my credit report?

    Find out how long missed payments, collections and requests for credit take to appear on a credit report and how often creditors ... Read Answer >>
  2. Secured vs unsecured lines of credit

    Discover the differences between a secured line of credit and an unsecured line of credit, and why lenders treat the two ... Read Answer >>
Trading Center