Hidden Liens – ERISA liens arising under 29 U.S.C. Section 1368

My partner, Guy Maisnik, is well-known as a fabulous real estate and hospitality law guru. Guy always seems to be closing an exciting deal for one of our good clients. Guy has been working on the Hidden Liens Project with the Commercial Transactions Committee of the Business Law Section of the State Bar of California, and he prepared a bulletin about a troublesome hidden lien that tends to surface when we close down an operating company for a secured creditor.

Hidden Liens – ERISA liens arising under 29 U.S.C. Section 1368

by Guy Maisnik

29 U.S.C. Section 1368 provides for a lien (“ERISA Lien”) upon the failure of a person to pay amounts owed to the Pension Benefit Guaranty Corporation (“Corporation”) where a single-employer plan is terminated in a distress termination or a termination is instituted by the Corporation. The liability amount is equal to the unfunded benefit liabilities together with accrued interest, subject to certain exceptions. The lien is imposed upon all real and personal property of such person, with limited exceptions, but not to exceed 30 percent of the collective net worth of such person.

Any secured party who extends credit to a contributing sponsor of a single-employer benefit plan, or a member of such sponsor’s control group, would be subject to the ERISA Lien. However, an ERISA Lien is not valid against creditors who did not have actual knowledge or notice of such lien at the time its interest came into existence. An ERISA Lien is also not valid against savings deposits, share and other accounts evidenced by a passbook held by such institution to the extent of loans made by such institution without notice or knowledge of the lien. Further, an ERISA Lien will not be valid against a security interest that arises after the filing but which is in “qualified property” covered by the terms of a written agreement entered into before the filing of lien and constituting a commercial transactions financing agreement, a real property construction or improvement financing agreement or an obligatory disbursement agreement, provided such interest is protected under local law against a judgment lien from an unsecured obligation.

A secured party can protect itself against an ERISA Lien by (a) performing a tax lien search prior to entering into the loan transaction in all appropriate filing offices, (b) requiring representations, warranties and covenants from the borrower regarding the matters that can give rise to the lien, (c) including a provision in the agreement for the loan transaction to eliminate the secured party’s obligation to lend if an ERISA Lien arises, (d) for a transaction involving future advances, performing a tax lien search every 45 days or before making any advances and (e) including in the transaction documents a well drafted collateral description that covers after-acquired property and a definition of the obligations secured thereby that covers future advances. Also, be certain to provide timely and appropriate notices to the Corporation when foreclosing on secured collateral to ensure such lien is removed upon foreclosure.

As Guy points out, more and more frequently, we find that careful drafting at the outset of a deal is key. Of course, this poses a problem, as it is not economical to use custom documentation for six- and low-seven-figure loans.

Solution: when closing a commercial loan that is a bit out of the ordinary, ask one of our JMBM Special Assets Team members to take a quick look to determine whether the Bank’s collateral position is well secured. It is often easy to clarify or fix canned loan documents with a simple rider. When preparing the rider, it is important to use the terms that are defined in the loan agreement and make certain that the rider fits comfortably and does not create any ambiguities in enforcing the loan.

This is Dick Rogan, bank lawyer and author of www.SpecialAssetsLawyer.com, signing off for now. Join us again soon to check out what’s new in the World of Workouts.


Guy Maisnik is a partner in JMBM’s Real Estate Department and a member of JMBM’s Global Hospitality Group®. Guy’s deep and broad transactional practice includes complex real estate finance and venture capital transactions, including project finance, commercial finance, leveraged leasing and real estate acquisitions. He assists clients with development, leasing and disposition, loan portfolio acquisitions, loan and debt restructure, workouts and real estate exchanges. For more information, please contact Guy Maisnik at 310.201.3588 or mgm@jmbm.com.

Year after year, day after day, workout professionals in the know rely on JMBM’s Special Assets Team™ to handle problem commercial and real estate loans. Whatever problem loans you have, chances are, we’ve seen it. Give us a call.

Our Perspective. JMBM represents commercial banks, special servicers, private lenders, asset-based lenders, hard money lenders and factors. We help lender clients throughout the United States craft business and legal solutions to their commercial and real estate troubled loans. For more information, please contact Dick Rogan at RRogan@JMBM.com, or (415) 398-8080.

Richard A. Rogan is Chair of the JMBM Special Assets Team™. He also serves as the co-managing partner of JMBM’s San Francisco office and co-chair of its Bankruptcy Practice Group.

JMBM’s Special Assets Team™ has represented hundreds of lenders in California and throughout the United States. We regularly appear in bankruptcy courts, district courts and superior courts. We are proud to serve as trusted counsel and advisors who look for a business solution and try to help lenders find the best possible resolution for each troubled loan. Whether a loan is being newly documented, restructured or litigated, JMBM’s Special Assets Team™ has the skill, know-how and experience to solve your problem in a practical no-nonsense way.

NOTE TO CONSUMERS: As a matter of Firm policy, JMBM does not represent individual consumers who have disputes with their lenders. Many lenders have specialized consumer workout professionals who have the time to help consumer borrowers. There are many fine attorneys who specialize in representing consumers. Individuals with consumer lending problems should contact a lawyer or law firm who specializes in consumer insolvency and bankruptcy in their local area. When in doubt, we suggest you contact your local bar association’s Lawyer Referral Service. [For example, see Bar Association of SF or LA County Bar Association Lawyer Referral Services]

JMBM does not provide legal advice to consumers, and cannot respond to consumer inquiries.