Should I Sell My Dental Practice?
April 28, 2025
By Luke Kapper, MBA
When buying or selling a dental practice, one crucial factor that can significantly impact the transaction is the presence of liens. These legal claims can complicate the process if not addressed properly. Whether you’re a dentist ready to transition out of your practice, bringing on a new business partner, or looking to take the reins of a new practice, understanding what liens are, how to identify them, and how to deal with them is essential. In this article, we’ll explore the different types of liens, how to search for them, and provide examples of how they can affect the sale of a dental practice.
Understanding UCC Filings
Imagine you just opened a trendy new bakery and coffee shop, selling the best croissants and lattes in town. But instead of paying upfront for all the internal remodeling, fancy espresso machines, ovens, and display cases, you finance them through a lender. The lender wants to ensure you don’t take those shiny machines and disappear to open a new café in Paris if times get tough, so they file a UCC (Uniform Commercial Code) lien with the state. This filing essentially says, “Hey everyone, if this person stops making payments, we have the right to take back the espresso machines before anyone else does!”
Think of it like putting an invisible “reserved” sticker on your equipment—other creditors or buyers can see it on the public record, so they know those assets are tied up. Once you finish paying off the loan, the lender removes the UCC filing, and your bakery’s gear is officially all yours. Whether you’re slinging espresso or polishing bicuspids, a UCC filing is just a way for lenders to say, “We called dibs!”
Common Types of Liens
Liens come in various forms, each designed to protect creditors by securing their interest in a borrower’s assets. Mechanic’s liens are filed by contractors, subcontractors, or suppliers who haven’t been paid for work or materials provided for a property, ensuring they can recover their costs. Tax liens are placed by government agencies when an individual or business owes unpaid taxes, giving the government a legal claim to assets until the debt is settled. Judgment liens arise when a court grants a creditor the right to claim a debtor’s property due to an unpaid legal judgment. Blanket liens give lenders a broad security interest in multiple or all of a borrower’s assets, commonly used in business loans to secure collateral across various categories. These categories include accounts receivable, equipment, leasehold improvements, and inventory. In contrast, equipment-specific liens target particular assets, such as a cone beam or a dental chair, ensuring that a lender has a claim only on those financed items rather than all business property. Each type of lien serves as a financial safeguard, ensuring creditors have a way to recover funds if debts go unpaid.
How to Identify Liens Before a Sale
Before selling your dental practice, conducting a thorough lien search is essential to identify any existing claims on your assets that could complicate the transaction. Start by checking UCC filings through your state’s Secretary of State website to see if any lenders have a secured interest in your equipment, accounts receivable, or other business assets.
Additionally, search for tax liens with the IRS and your state’s tax authority to ensure there are no outstanding obligations. If you’ve ever faced a legal dispute, check court records for judgment liens that may have been placed against your practice. If you financed equipment or took out business loans, review your loan documents to confirm whether blanket liens or equipment-specific liens exist. It’s also a good idea to consult a legal or financial professional to verify the results and determine the best steps to clear any outstanding liens before finalizing the sale.
Liens can be filed against you as an individual or against your business entity. Aligning yourself with the right team to help you through this process is essential. Taking these steps ensures a smooth and undisputed transfer of ownership, preventing delays or surprises during the closing process.
What to Do If You Discover a Lien
If you discover a lien on your dental practice, the first step is to identify the type of lien and verify its validity. If the lien is attached to a known practice obligation, it can often be settled at closing, provided there is enough money changing hands to cover the payoff of the debt. Check state and county records, as well as your loan documents, to confirm who placed the lien and why.
If the lien is legitimate, contact the lienholder—whether it’s a lender, the IRS, a contractor, or a creditor—to discuss repayment or settlement options. If the lien is incorrect or has already been satisfied, request a Lien Release or UCC Termination Statement to have it removed. For tax liens, work with a tax professional to negotiate a resolution with the IRS or state agency. If a judgment lien is involved, consult an attorney to explore potential legal remedies.
Once the lien is cleared, ensure that the proper filings are made with the appropriate government offices to officially remove it. Taking swift action can help prevent issues with selling your practice, obtaining financing, or maintaining control over your assets.
The Hidden Risk of Cross-Collateralization
When selling your dental practice, cross-collateralization can create unexpected challenges, especially if you own the practice real estate or another dental practice. Cross-collateralization occurs when a lender secures multiple loans with the same assets—meaning your practice loan, real estate loan, or a loan for a second location may be tied together. If one loan remains unpaid, the lender could have a claim on all the assets, even if you’re only selling one of them. This can complicate the sale because the lien may not be released until all debts secured by the collateral are satisfied.
Before listing your practice, review your loan agreements and UCC filings to determine if cross-collateralization exists. If so, work with your lender to negotiate a partial lien release or restructure remaining debt to ensure a clean sale of the practice without unnecessary encumbrances on your other assets. Cross-collateralization can be extremely complex and time-consuming to address. Recognizing this situation early on is crucial to keeping your practice sale on your preferred timeline.
Watch for Due-on-Sale Clauses in Real Estate Loans
If you have a real estate loan on your building and sell your dental practice without notifying the lender, you could trigger an event of default under your loan agreement, even if there is no blanket lien tied to the practice assets. Many commercial real estate loans include a “due-on-sale” clause, meaning that if the business occupying the property is sold or transferred without lender approval, the loan can be called due immediately. This could force you to either pay off the remaining loan balance in full or face potential foreclosure. To avoid this, always review your loan terms and consult with your real estate lender before selling your practice to explore options like loan assumption, refinancing, or lender consent to ensure a smooth transition.
Avoiding Surprises During Your Sale
Selling your dental practice should feel like a celebration, not an episode of a legal drama where surprise liens pop up like uninvited guests at your retirement party. The last thing you want is to reach the closing table only to hear, “Wait, who still owns this CEREC?” or “Why is the IRS crashing my sale?” At Menlo Dental Transitions, we’re like the expert flossers of the practice sales world—digging deep to remove any hidden financial plaque (aka liens) before they become a painful problem. Whether it’s UCC filings, tax liens, cross-collateralization, or that one equipment lease you forgot about from 2012, our team knows how to untangle the mess, work with lenders, and ensure a smooth transaction.
So, instead of spending hours on hold with the Secretary of State’s office or trying to decode legal jargon, let us assist. You focus on celebrating your transition—whether that means finally perfecting your golf swing, taking that dream vacation, or just never having to order another box of impression material again. Menlo Dental Transitions has your back—no cavities, no liens, just a smooth, stress-free sale.
