UCC

UCC

The UCC lien protects lenders from authorizing additional loans that contain the same assets as collateral. It allows them to maintain their financial interests. UCCs are public record and proper due diligence should be done as a part of the loan application process to determine which assets are already collateralized. These liens are managed under the Uniform Commercial Code, the code attempts to enforce uniformity in how state jurisdictions process UCCs.
It’s important to know that in most cases, a UCC filing will not have any direct impact on business operations. If no additional borrowing needs exist and the debtor does not default on the loan, then the UCC lien should cause no concern.
However, starting a loan application process there are risks associated with having a UCC filing against assets that need to be considered. Three main risks exist when a UCC lien remains active against a debtor. First, a UCC may prevent a debtor from obtaining additional financing. This is the most common effect a UCC can have to a debtor since lenders usually want their debtor to be lien free prior to finalizing a loan. Secondly, a UCC can impact a credit report. It won’t impact the actual score, but it will appear which will give insight into borrowing history. Thirdly, there is the risk of losing secured assets. Until the loan is paid off, there is always potential the property could be seized if there is a default.

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Where does a UCC originate from?
Typically when a debtor (entity or individual) agrees to pledge assets to a secured party, usually a lender, for a loan or line of credit, a security agreement is signed. The security agreement provides the secured party with the ability to use specific assets as collateral. Once the loan is finalized, a UCC lien is filed against the assets pledged, which gives notice of the lender’s rights to the public.
On average UCC’s follow strict priority, the first secured party to file a lien against a debtor will have first rights to that asset or assets listed on their particular UCC. In the situation of a defaulted loan, the lender is essentially holding their ‘spot in line’ to collect on those assets pledged.
For example, if there is a piece of equipment that Lender A filed a UCC on, and Lender B also files a lien on the same piece of equipment, Lender A has first lien position rights to the equipment. If the debtor has defaulted and the equipment is being sold to pay debts, Lender A will be paid off first, and Lender B will receive any leftover funds after the first priority lien position is completely repaid.
There are two types of collateral for a UCC: Blanket or Specific.
A blanket lien takes ALL current, and at times, future assets of the debtor as collateral. This UCC is common for traditional, SBA and alternative bank loans. Traditional and SBA bank lenders use blanket liens to fully secure the loan. All assets of the debtor are factored into the lending decisions. When businesses do not have a lot of hard assets for a loan, they may seek out an alternative lender, at times it’s the only way to get funding when there is not enough assets to satisfy a standard loan. Blanket liens are preferred because the loan is secured with all debtors assets instead of just a single asset. The underwriting process is typically more flexible when dealing with a blanket lien, it allows lenders to provide funding more quickly. Also, lenders are usually willing to take a 2nd or 3rd position when the loan is short-term.
Conversely, a UCC can lay out specific collateral items. This type of lien protects one or more assets to secure the loan or credit agreement. Specific collateral liens are most common for loans that have a specific purpose, such as inventory or equipment financing.
The following are some common types of specific assets that might be listed on a UCC filing:
  • Commercial instruments (such as drafts or promissory notes)
  • Equipment (multiple types)
  • Inventory
  • Investment securities
  • Large operating equipment
  • Letters of credit
  • Office equipment
  • Real Estate (including fixtures)
  • Receivables
  • Other goods or intangibles owned or used by the debtor
  • Vehicles

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A proper financing statement must provide the name of the debtor, and there are fairly strict requirements for the sufficiency of the debtor’s name.  (See UCC§§ 9-502& 9-503.)  If the debtor’s name changes such that the name on the financing statement no longer matches the debtor’s name closely enough to avoid being seriously misleading when measured after the name change, the effect of the financing statement is limited.
A financing statement that previously sufficiently provided the name of the debtor but that would be seriously misleading if measured after the name change still provides the secured party with two things:  continued perfection for collateral acquired before the name change and a four-month opportunity to amend the financing statement to provide the debtor’s new name and extend the effect of the financing statement.  (See § 9-507(c).)
A security interest perfected by a proper financing statement remains perfected despite the debtor’s name change with respect to assets of the debtor as of the date of the name change or acquired within four months thereafter.  (See § 9-507(c)(1).)  Practically, it will be important to have a detailed and current collateral list, to have some evidence regarding what assets the debtor had and when those assets were acquired.  Imagine a credit transaction,shortly after the name change, where a competing party gives value to the debtor and the debtor grants a new security interest.  The new secured party obtains a UCC search report using the debtor’s new name, which report does not reveal the existing filing using the debtor’s old name.  Having taken on too much debt, the debtor promptly defaults, and the new secured party takes possession of the debtor’s assets.  You want to recover your collateral from the competing secured party.  Among other things, you will need to prove which assets are your collateral, hence the need for a detailed and current collateral list.  Fortunately, the UCC allows for continuing perfection and priority, at least in certain collateral, despite the name change. 
Within four months after the name change, a secured party can amend its financing statement to provide the debtor’s new name and preserve the perfection and priority, despite the name change, even in assets of the debtor acquired more than four months after the name change.  (See § 9-507(c)(2).)  A “late” amendment – that is, one filed more than four months after the name change – would work like an amendment adding a debtor; it would provide perfection and priority only from the date of the amendment.
There is good reason to include a term in your agreement that requires a debtor to notify you immediately if the debtor changes its name.  Prudence also suggests periodic monitoring, in case the debtor fails to notify you.  And, in any case, there is good reason to act promptly if you learn of a debtor name change.
NOT INTENDED TO PROVIDE LEGAL, ACCOUNTING OR OTHER PROFESSIONAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.
Say you are a secured party with a filed financing statement.  For whatever reason, you obtain a search report for filings naming your debtor.  The report shows your unlapsed financing statement, but, unexpectedly, it also shows a termination of your financing statement!  What can you do to try to create evidence and provide notice that a termination statement was unauthorized?
Who filed the termination statement?  There are important differences among terminations filed by the debtor, filed inadvertently or improvidently by the secured party, or filed by someone other than the debtor or the secured party.
A debtor is entitled to file a termination statement under certain circumstances, including where the debtor properly demanded a termination from the secured party but the secured party failed to respond or where the debtor did not authorize the initial financing statement.  See §§ 9-509(d) & 9-513 (a)&(c).  Outside of these circumstances, and absent authorization by the secured party, a termination statement filed by the debtor is unauthorized.
A termination statement filed by a secured party is probably not “unauthorized” even if it is inadvertent or improvident; in other words, a termination statement “filed by mistake” is nonetheless a filed termination statement, and “unwise” or “regrettable” does not mean “unauthorized.”  An inadvertent termination statement could arise, for example, where a secured party seeking to file a continuation or some other amendment accidentally selects the termination option.  An improvident termination statement could arise, for example, where a secured party files a termination statement after Loan 1 is paid in full without realizing that the security interest for Loan 2 is also perfected by the same financing statement.  A hybrid of inadvertent and improvident could occur where the secured party mistakenly files a termination statement for the financing statement connected to Loan 2 when the secured party meant to terminate the different financing statement connected to Loan 1.  In any case, a termination statement filed by the secured party is seldom unauthorized.
A termination statement filed by someone other than the debtor or the secured party, or an agent of either of them, is more likely to be unauthorized.  One situation that arises from time to time involves a new lender/secured party filing a termination statement purporting to affect the financing statement of the “old” lender/secured party.  Another situation involves some other filer creating a typo in the identification of the initial financing statement in an otherwise proper termination statement and accidentally connecting their termination statement to your initial financing statement. These are examples of unauthorized termination statements.
What if it is truly an unauthorized termination statement?“A person may file in the filing office an information statement with respect to a record filed there if the person is a secured party of record with respect to the financing statement to which the record relates and believes that the person that filed the record was not entitled to do so under Section 9-509(d).” § 9-518(c).  The form is a UCC-5 Information Statement.  The information statement must indicate that it is an information statement – which the form inherently does – and requires just two data elements: the file number for the initial financing statement to which it relates, and the basis for the filer’s belief that the person that filed the termination statement was not entitled to do so under § 9-509.
A sample statement of the basis for a claim of an unauthorized termination statement might be something like:
The person filing the purported termination statement was not the secured party, was not authorized by the secured party, and was neither the debtor nor an agent of the debtor acting under circumstance where a debtor could be entitled to file a termination statement after a failure of the secured party to do so in a timely manner.

What is the effect of filing an Information Statement?  Well… The UCC specifically states that “[t]he filing of an information statement does not affect the effectiveness of an initial financing statement or other filed record.”  § 9-518(e).  The logic is that an unauthorized termination is not effective in the first place, and the information statement is merely a flag rather than a correction.  There is utility in filing an Information Statement to draw attention to unauthorized termination.  It flags the unauthorized filing which should prevent subsequent reliance on the effectiveness of the unauthorized record; imagine your office decided not to file a continuation because someone erroneously believed the financing statement had been terminated. It contributes to the integrity of the filing office’s database; flagging errors makes the system more accurate and reliable for everyone.  And it creates some evidence of the secured party’s diligence in monitoring its financing statements; whether it is a competing secured party, a bankruptcy trustee, a regulator or auditor, your boss, or anyone else asking, wouldn’t you prefer to be able to show that you recognized the issue and flagged it?

NOT INTENDED TO PROVIDE LEGAL, ACCOUNTING OR OTHER PROFESSIONAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.

Article 9 of the Uniform Commercial Code requires that a financing statement, to be effective, must indicate the collateral that it covers.  A common and useful practice is to specify types of assets that are collateral using UCC Article 9 definitions of asset types.
Some common asset types defined under UCC Article 9 include accounts, chattel paper, documents, equipment, general intangibles, instruments, inventory, and investment property.  See § 9‑102.  It is important to be aware of the UCC Article 9 definitions.  Though many people would be prompted to search for a definition of uncommon terms like chattel paper or general intangibles, many people fail to realize that otherwise ordinary terms like accounts, documents, and investment property have specific meaning under UCC Article 9.  Here are some common misunderstandings:
An “account” is a “right to payment of a monetary obligation…” with certain specific exclusions, notably including “deposit accounts.”  See § 9-102(a)(2).  Typically, a bank account is a deposit account, but a bank account is rarely, if ever, an “account.”
A “document” is a “document of title or a receipt of the type described in § 7-201….”  Books, business records, databases, customer lists, invoices, receipts, bank records, manuals, logs, and the like are not documents under the UCC Article 9 definition.  The UCC Article 9 definition of “document” involves two more issues; it makes explicit reference to another article of the UCC, Article 7, and incorporates an implicit reference to still another article of the UCC, Article 1.  The explicit reference to § 7-201 is easy to see; the use of “document of title,” which is defined in UCC Article 1, is more difficult to appreciate.  See § 1-201(b)(16).
TIP:  Article 1 of the Uniform Commercial Code includes a batch of approximately 40 definitions, including common words like “agreement,” “money,” and “security interest.”  Article 1 also separately describes concepts such as “notice” and “value” and provides guidance on the difference between leases and security interest.  Article 1 applies to all transactions under the UCC (see § 1-102).  Familiarize yourself with Article 1!
“Investment property” does not rely on the investor’s intention, so things like precious metals, artwork, or other rare goods do not become investment property simply because one acquired them “as an investment.” Under the UCC Article 9 definition, investment property “means a security [], security entitlement, securities account, commodity contract, or commodity account.”  See § 9-102(a)(49).  By the way, every one of those things is also a defined term under the UCC, some of which require reference to UCC Article 8.
Some people also overlook the context necessary to select an appropriate collateral type.  As an example, the tools and machines that one can rent at the local rental shop may look like equipment to the renter but they are inventory to the rental company.  (Remember, “inventory” includes goods for lease.  See § 9‑102(48).)
Again, it is a useful practice to specify types of assets that are collateral using UCC Article 9 definitions, but doing so requires an understanding of the definitions.  Start with § 9-102, but don’t stop there!
NOT INTENDED TO PROVIDE LEGAL, ACCOUNTING OR OTHER PROFESSIONAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.
Complications with Multiple Secured Parties: Part 3- Risks
Again, most people do not appreciate the potential complications involved when a search reveals multiple secured parties on a single financing statement. See the first two parts of this series regarding the confusion arising when terminations, amendments, and continuations are filed with respect to financing statements with multiple secured parties. This part concerns the risks or potential consequences that flow from that confusion.
Let’s begin with an easy example.
  • SP-1 filed a financing statement in 2014 covering accounts, equipment, general intangibles, and inventory.
  • SP-1 authorized the filing of an amendment in 2015, and the amendment was filed, indicating an assignment by SP-1 to SP-2 of the interest in inventory.
  • In 2016, SP-3 paid SP-2 in full and filed its own financing statement covering accounts, equipment, general intangibles, and inventory, and SP-2 provided a termination of the 2014 financing statement.
  • SP-3 obtains a confirming UCC search, and the report shows only SP-3’s recent financing statement along with the 2014 financing statement, 2015 assignment, and 2016 termination.
Does SP-3 conclude that it is first-to- file with respect to accounts, equipment, general intangibles, and inventory? It should not, because the 2016 termination by SP-2 only affects SP2’s interest unless there is evidence that SP-1 also authorized the 2016 termination. Remember: “a record authorized by one secured party of record does not affect the financing statement with respect to another secured party of record.” (§ 9510(b).)
The risk illustrated by this example is that a secured party retained some interest that was not resolved by a termination provided by another secured party. Relying solely on a search report – showing initial filing by SP-1, assignment to SP-2, and termination by SP-2 – one could conclude that the entire interest memorialized in the financing statement was resolved. But that would be a mistake, because examination of the underlying records – the initial financing statement, assignment, and termination – would reveal that SP-1’s interest in accounts, equipment, and general intangibles remains unresolved.
There are myriad combinations and permutations of records that comprise financing statements, and neither a search report alone nor a superficial review of the underlying records will reliably reveal the various record interests of various secured parties. And the risks of misinterpretation or of not inquiring deeply enough are particularly prevalent where there are multiple secured parties on a single financing statement. Risks include, among others, that an assignment affected less than assignor’s entire interest in all collateral, that an amendment (e.g., a deletion or “release” of particular collateral) affected less than all secured parties’ interests in that collateral, or that a termination ended less than all secured parties’ interests under the financing statement.
So, especially when one encounters multiple secured parties on a single financing statement, one should examine all records that comprise the financing statement to determine the status and interest, if any, of each secured party of record. (See Official Comment 2 to § 9511.) Sometimes, in fact, the inquiry might go even further than that….
NOT INTENDED TO PROVIDE LEGAL, ACCOUNTING OR OTHER PROFESSIONAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.
Complications with Multiple Secured Parties: Part 2- Amendments
Again, most people do not appreciate the potential complications involved when a search reveals multiple secured parties on a single financing statement.
In the first part of this series, we discussed the potential for confusion to arise when a new secured party is added but the interest, if any, of the “old” secured party is not unambiguously ended. Consequently, an “old” secured party can remain a secured party of record; and remember: a careful searcher should seek to resolve the interest of every secured party of record. In this part, let’s discuss amendments other than terminations.
An amendment authorized by one secured party does not necessarily affect the rights of another secured party on the same financing statement. See § 9510(b). If SP-1 files an amendment without the concurrence of SP2, the amendment affects only the rights of SP-1. Presumably, the “other” secured party, SP-2, would be quick to ratify any amendment that adds collateral, adds a debtor, or otherwise increases its rights, but SP-2 would be just as quick to deny any amendment that purports to delete collateral, delete a debtor, or otherwise decreases its rights.
For example, consider that there are two secured parties listed for a financing statement, and one of them files an amendment. The amendment only affects the rights of any secured party that authorized the amendment. The secured party that filed the amendment almost certainly authorized it – that seems apparent from the fact that the secured party did file an amendment – but the other secured party’s authorization is not apparent from the filed amendment itself.
In this context, there are three alternatives to bind the “other” secured party. First, one could obtain evidence that the other secured party, SP-1, no longer actually has an interest, so SP-2’s amendment is sufficient. Second, one could obtain evidence that SP-1 is bound by the actions of SP-2, thereby making SP-2’s amendment binding on SP-1. Third, one could obtain authorization to file an amendment on SP-1’s behalf.
Again, any time there are multiple secured parties indicated with respect to a financing statement, one should satisfy oneself either (a) that all the secured parties have authorized the amendment, or (b) that all the “live” secured parties have authorized the amendment and there is adequate evidence that the other secured parties have either released, waived, or otherwise lost their rights with respect to the financing statement OR are bound by whatever amendments have been filed.
Notice that there has been no mention of continuation? Well, like other amendments, a continuation only affects the rights of a secured party that authorizes the filing. However, if there are multiple secured parties and one files a continuation, it is a virtual certainty that any other secured party would ratify or adopt the continuation, to protect its interest, if it still has one. Practically, it is exceedingly rare to see multiple concurrent continuations, though it would be the best practice for each secured party to file its own continuation.
More next time on the risks and consequences associated with the confusion from multiple secured parties on a single financing statement.
NOT INTENDED TO PROVIDE LEGAL, ACCOUNTING OR OTHER PROFESSIONAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.
Complications with Multiple Secured Parties: Part 1- Terminations
Most people do not appreciate the potential complications involved when a search reveals multiple secured parties on a single financing statement.
Here is part of the cause of the confusion: the filing office has a serious concern about omitting pertinent data, and their system is designed to add information readily but to remove information only in very specific circumstances. In Minnesota, at least, applicable rules provide that:
1. An assignment adds the assignee as a secured party but does not delete the assignor as a secured party. (See Minn. R. 8280.0220)
2. An amendment to change a secured party’s name adds a “new” secured party name but does not delete the “old” secured party name. (See Minn. R. 8280.0210(A)(3).)
The problem, then, is that a UCC search report may show multiple secured parties while the underlying records could reveal that one or more of the apparent secured parties is not actually still involved. Official Comment 2 to § 9511 astutely states that “all effective records that comprise a financing statement must be examined to determine the person or persons that have the status of secured party of record.” True!
If a search reveals multiple secured parties with respect to a financing statement, and the goal is to resolve that financing statement, one can pursue one of two approaches. One can analyze all the records affecting the financing statement, attempt to compile evidence to exclude one or more antiquated secured parties, and obtain terminations from each secured party that has not been definitively excluded. Alternatively, one can seek to obtain a termination statement from every listed secured party.
"If one of several secured parties of record files a termination statement, [its effect] applies only with respect to the rights of the person who authorized the filing of the termination statement… The financing statement remains effective with respect to the rights of the others.” Official Comment 5 to § 9513.
The filing office is not the arbiter concerning who should be a secured party of record; they will list any secured party that has not unambiguously been relieved of that role. To be certain that the interests of all prior secured parties are resolved, one must obtain a termination from each and every secured party of record OR otherwise collect evidence to establish convincingly that the interest of each apparent secured party was otherwise ended. To resolve the interest of a secured party revealed in a search report but which is not subject to a UCCform termination from that secured party, one might chose to rely on an authenticated statement from the apparent secured party that the one of the following three things is true.
First, the secured party could state that its entire interest memorialized in the financing statement was transferred to another named secured party of record with respect to that financing statement. For example: “SP-1’s entire interest in collateral memorialized in financing statement [filing no.] was transferred to SP-2 on [date].” Then, so long as one has a termination statement from SP-2 dated after the date SP-1 transferred its interest, one could conclude that that financing statement is resolved. Theeffect of this first type of statement is to establish that SP-1 no longer claims any interest.
NOTE: The implication of a UCC-3 amendment indicating an assignment in Field 3 and completing Fields 7 and 9 but not Field 8 should be that the assignment is not a partial assignment. Logically, an assignment that is “not partial” must be “full,” but the assignor would still remain as a secured party of record absent a separate amendment indicating a party information change in Field 5 and identifying the secured party to be deleted.
Second, the secured party could agree to be bound by the “new” secured party’s termination, probably at the same time denying that the earlier secured party still has any interest. For example: “SP-1 cannot provide a termination to financing statement [filing no.] because it transferred its entire interest to SP-2. SP-1 agrees to be bound by any termination provided by SP-2.” Then, so long as one has a termination statement from SP-2, one could conclude that that financing statement is resolved. The effect of this second type of statement is to establish that SP-1 is bound by SP-2’s termination. Third, the secured party could authorize another (e.g., the debtor or the prospective new secured party) to file a termination of the secured party’s interest. For example: “SP-1 authorizes [named person] to terminate whatever interest SP-1 has, if any, under finance statement [filing no.].” Then, so long as the authorized person completes a termination, and SP-2 has separately provided its termination, one could conclude that that financing statement is resolved. The effect of this third type of statement is to delegate the authority to prepare and deliver a termination of SP-1’s interest.
NOTE: Only the third alternative will result in a “clean” UCC search result, because it authorizes the filing of a UCC-form termination. The two other alternatives involve evidence that the secured party no longer has an interest, but they do not necessarily provide a vehicle to cause a UCC-form termination to be filed on the secured party’s behalf, so the UCC search results may continue to reflect the potential interest.
So, a careful searcher should seek to resolve the interest of every secured party of record, not merely the “latest” secured party of record with respect to each financing statement, and there are multiple ways to accomplish this, though the decision regarding which method is acceptable for each searcher is left to that person’s determination.
More next time on amendments, etc.
NOT INTENDED TO PROVIDE LEGAL, ACCOUNTING OR OTHER PROFESSIONAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.
“Lapsed” or “Unlapsed,” and Perhaps “Active” or “Inactive,” but not “Terminated.”
The UCC’s recordkeeping requirement for filing offices (e.g., state Secretaries of State) is that the filing office must maintain records until at least one year after a financing statement would lapse. See § 9522. Lapse occurs, typically, on the five-year anniversary of the initial filing, unless, within the appropriate window of opportunity, a continuation statement is filed. See § 9-515(c).
Note that there are different periods applicable when public-finance transactions, manufactured-home transactions, transmitting utilities, or mortgages as fixture financing statements are involved. Seek additional information and guidance in any of these special cases. The remainder of this discussion presumes that none of these special cases applies.
One could imagine dividing all financing statements into three groups: “unlapsed,” “lapsed one year or less,” and “lapsed more than one year.” Using just two simple groups, “unlapsed” and “lapsed,” would not provide enough differentiation to allow the filing office to follow the rule to keep financing statements that are “unlapsed” or “lapsed one year or less.”
In Minnesota, financing statements that are unlapsed or lapsed one year or less are labeled “active.” See Minn. R. 8282.0150 D. In Minnesota, active records must be maintained, but inactive records may be removed from the database. For a searcher, this means that a search might include “inactive” records that have not yet been removed. Other states use the term “active” differently. For example, in Delaware and Texas, financing statements are “active” until they have been removed from the database. For a searcher, this means that a search would not include “inactive” records, because they would have been removed from the database. In any case, a label of “active” or “inactive,” though useful for the filing office, is not directly relevant to a user of the UCC filing databases. In Minnesota, anyway, a searcher can ignore “inactive” records.
So, each financing statement is either “lapsed” or “unlapsed,” which merely tells us whether it has gone more than five years without being continued. Consider this “lapse status.” And, in some states, financing statements are “active” or “inactive,” which is merely a label for the filing office’s administration of its database. Consider this “activity status.” For both of these statuses, there is an objective determination that can be made by the filing office. They know whether a financing statement has lapsed because it depends solely on the calendar, and they know whether it is “active” on “inactive” because it is solely a label in their database.
Notice that “terminated” is not a label we have encountered. “Termination” does not affect the status: “active” vs. “inactive” or “unlapsed” vs. “lapsed.” This is because the effect of a termination statement cannot be objectively determined by the filing office. Why not? Like an initial financing statement or an amendment, a termination is only effective to the extent that it is filed by a person entitled to file it. See §§ 9510 & 9509. The filing office is not the arbiter on whether a termination is authorized. Consequently, though the filing office will include a termination in the database, the filing office will not change the status of a financing statement, whether or not it has been “terminated.”
NOT INTENDED TO PROVIDE LEGAL, ACCOUNTING OR OTHER PROFESSIONAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.
Post Lien Recommended Steps
Conducting a Post Lien Search is of the greatest importance for double checking to make sure the filing is on record and indexed correctly.
What is it?
Search of filing office's UCC records after your UCC has been recorded.
Why do it?
1.Confirms states' index is correct
2. Verifies lien position relative to other creditors
3. Closes gap between pre-funding UCC search and your UCC filing, if performed

The three types of Post Lien Searches often performed:
Certified Search
  • Exact legal name- state standard search logic
  • Unperfected lien/seriously misleading if doesnt show up
Plain Search
  • Can reveal name variations
Filing Number Verification
  • Search on UCC filing number only to see how it's indexed, not a search on the debtor name 

Related Info
UCC Services
Effortlessly search for UCCs, retrieve copies and submit UCCs for filing. (Read More)
Court Research
Request your widespread, multi-jurisdictional searches through Capitol Lien. (Read More)
Real Estate Research
Capitol Lien retrieves and verifies property information to provide the highest level of integrity. (Read More)
NOT INTENDED TO PROVIDE LEGAL, ACCOUNTING OR OTHER PROFESSIONAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.

Why allow a PMSI to disturb the relatively straightforward order-of- filing priority scheme? There are at least two reasons: facilitating seller financing and limiting the power of existing secured parties.
Sometimes a seller of goods is willing to provide financing to a buyer. Sometimes the seller’s financing is on better terms than the buyer’s line of credit with its traditional lender, or perhaps the buyer does not have a line of credit and the traditional lender cannot or will not extend additional credit to the buyer. If the seller were willing to provide the financing and step into line behind the traditional lender, whose perfected security interest would attach to the new goods, great! But if the seller expects or requires that it will get a first-priority security interest on the new goods – goods it is selling to the buyer – the transaction cannot be completed without the cooperation of the traditional lender; unless there was a special rule to enable a seller to “jump ahead."
Say neither the seller nor the existing lender/secured party is willing to finance a buyer; perhaps the buyer wants to add a new product line to complement existing lines, but the seller does not provide financing, and the existing lender views the idea as a change in business model that it does not support. Should the existing lender’s reluctance prevent the would-be buyer from pursuing the effort? No. If the buyer can find another lender who would provide financing, the new lender could satisfy the technical requirements to create a PMSI, enabling the buyer to proceed and limiting the effect of the existing lender’s refusal or inability to provide additional financing.
Note that it is common for loan documents and similar agreements to include restrictions on additional financing or further security interests. Though the PMSI rules allow for a seller or new lender to “jump ahead” in terms of priority, to do so might be a breach or event of default under existing agreements, so a would-be buyer must still be wary.
So, for some types of funding – of purchasemoney obligations – and for some types of collateral – purchasemoney collateral – one has the opportunity to satisfy the technical requirements and take advantage of an exception to the general rules of priority to acquire purchasemoney priority and a PMSI!
NOT INTENDED TO PROVIDE LEGAL, ACCOUNTING OR OTHER PROFESSIONAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.
If a secured party has a perfected security interest in purchasemoney collateral, the secured party should be able to acquire purchasemoney priority – and take advantage of an exception to the general rules of priority – by satisfying the technical requirements of § 9-324. 
If the purchase-money collateral is consumer goods (see § 9102(a)(23)), perfection occurs even without filing (see § 9309(1)) and the PMSI priority begins at attachment of the security interest (see § 9-203(a)). Remember that, generally, the burden is on the secured party claiming a PMSI to establish the existence and extent of the PMSI (see § 9103(g)), and a filing can be useful to memorialize the facts of the transaction, even though filing is not required.
If the purchasemoney collateral is equipment or farm products other than livestock, a PMSI takes priority so long as it was perfected before or within 20 days after the debtor receives possession of the purchasemoney collateral. See § 9-324(a). 
If the purchasemoney collateral is inventory, there are two important differences. First, the security interest must be perfected before the debtor receives possession of the purchasemoney collateral; there is no 20-day grace period. See § 9-324(b)(1). Second, the secured party claiming the PMSI must send, and all secured parties with prior perfected security interests in inventory must receive, a qualifying notification before the debtor receives possession of the purchasemoney collateral. See § 9-324(b)(2)- (b)(4). An “inventory PMSI prenotification” must (1) state that the sender has or expects to have a PMSI in inventory, (2) identify the debtor, and (3) describe the inventory. The secured party claiming the PMSI should send the notification by some means that allows the creation of evidence of receipt by the competing secured parties – for example, certified mail return receipts.
Note that it is easy to overlook the limitation that an inventory PMSI prenotification is only effective for five years. See § 9324(b)(3). Inventory itself probably turns over much faster than that, but an inventory financing relationship could last longer than that. Therefore, an inventory PMSI prenotification should be renewed on a schedule similar to continuation of a UCC financing statement.
If the purchasemoney collateral is livestock, a “livestock PMSI prenotification” is required. It is similar to an inventory PMSI prenotification, except that it must be received by the holders of competing security intertests in livestock within six months before the debtor receives possession of the purchasemoney collateral. See § 9324(d). 
Note that it is necessary to “refresh” a livestock PMSI prenotification at least every six months, due to the small window for notification, if the debtor is continuing to receive possession of purchasemoney collateral.
If the purchasemoney collateral is software, the special priority rule applies only if the software is acquired or used in goods that are also purchasemoney collateral. See § 9324(e). 
Why the special treatment of PMSIs? More on that next time, in PMSIs – Part 3.3
NOT INTENDED TO PROVIDE LEGAL, ACCOUNTING OR OTHER PROFESSIONAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.
Under UCC Article 9, the general rules for determining security interest priority are (1) that perfected security interests have priority over unperfected security interests, and (2) that perfected security interests have priority according to their respective times of filing or perfection.  See § 9‑322(a).  That is why we pay so much attention to the chronology of a UCC search report.  One exception to the general rules involves purchase‑money security interests, or PMSIs.
A “purchase‑money obligation” is an obligation incurred for some or all of the price ofcollateral, so long as the funding is, in fact, used to enable the debtor to acquire rights in the collateral.  See § 9‑103(a)(2).  And “purchase‑money collateral” is goods or softwarethat secure a purchase-money obligation.
Note that a PMSI must involve goods – equipment, inventory, farm products, or consumer goods – or software.  See §§ 9‑102(a)(44), -102(a)(33), -102(a)(76).  One cannot have a UCCPMSI in accounts, chattel paper, general intangibles, instruments, or investment property, or in anything else that is not goods or software.
Under the first part of the general rules stated above, a perfected security interest will have priority over an unperfected security interest.  Therefore, to take advantage of the exception to the general rules and achieve purchase‑money priority, one must perfect the security interest.  For equipment, inventory, farm products, and software, which are eligible for a PMSI claim, a security interest can – and must – be perfected by filing a financing statement.  See § 9‑310.  For consumer goods, filing is advisable, both to provide protection in the event of a further sale of the consumer goods to a second buyer (see § 9-320(b)), and in case the secured party cannot establish all the requisites for a PMSI but still desires to have a perfected security interest (see § 9‑309(1)).
Note that, generally, the burden is on the secured party claiming a PMSI to establish the existence and extent of the PMSI.  See § 9‑103(g).
So, if one has a purchase‑money obligation and purchase‑money collateral, one has the opportunity to acquire a purchase‑money security interest, or PMSI.  How?  More on that next time, in PMSIs – Part 2.
NOT INTENDED TO PROVIDE LEGAL, ACCOUNTING OR OTHER PROFESSIONAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.

When Filing

IACA Forms: The following PDF Forms are provided to assist with your UCC processing.

UCC1 – Financing Statement

UCC1Ad – Financing Statement Addendum

UCC1AP – Financing Statement Additional Party

UCC3 – Financing Statement Amendment

UCC3Ad – Financing Statement Amendment Addendum

UCC 3AP – Financing Statement Amendment Additional

UCC5 – Information Statement

UCC11 – Information Request

Tips For Filing:

  • Verify proper filing fee or use an agent that would know
  • Use the correct form
  • Fill out the form completely
  • Make sure you are filing in the appropriate jurisdiction

Related Info

Registered Agent Services

Capitol Lien is a leader in Registered Agent Services nationwide. (Read More)

Database Direct

Database Direct allows clients to perform name searches and obtain copies of UCCs and Tax Liens. (Read More)

Due Diligence Blog

Stay updated on the latest legislation and jurisdiction news on our blog. (Read More)

NOT INTENDED TO PROVIDE LEGAL, ACCOUNTING OR OTHER PROFESSIONAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.


Before You File

Before filing a UCC you will need to do the following to ensure that your filing is successfully filed:

1. Ensure you are filing on all proper debtors associated with the transaction

2. Verify proper legal name(s) and addresses

3. Run a UCC search on each debtor's legal name to make sure collateral is clear of any liens


Related Info

The Best way to determine the legal name of a corporate entity is to obtain a copy of it's charter documents, including amendments which could reveal any recorded name changes.

We can help you to obtain corporate records to ensure the proper legal name of a business. We provide corporate services every day in conjunction with UCC searches and filings for our clients.


Did you know?

When determining the proper individual debtor name on the financing statement, not all states are the same. Even though most states have adopted Alternative A following the 2013 revisions to the UCC statute, seven states (AK, CO, CT, DE, NH, OR, WY) to date have adopted Alternative B.

  • Alt. A states require the exact name as it appears on the driver's license
  • Alt. B states accept multiple ways to determine the proper legal name:
    • ​Driver's license, name under current law and surname and first name
    • Example: Robert B. Smith, Robert Bradley Smith, Robert Smith
NOT INTENDED TO PROVIDE LEGAL, ACCOUNTING OR OTHER PROFESSIONAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.
 

Uniform Commercial Code

The Uniform Commercial Code is the law governing various financial commercial transactions. A UCC essentially gives notice to the public that the secured party has an interest in the personal property of the debtor.

A UCC lien usually results when a secured party lends money to a debtor, and the debtor pledges collateral to the secured party or lender in exchange for the loan.

While a UCC is not a legal document and doesn’t need signatures, they still have serious ramifications. An improperly completed or filed UCC-1 will result in loss of your institutions perfected security interest.


Related Info

Secured Party Searches

A Secured Party Search reveals UCCs that are filed by a specific secured party, rather than by debtor name.
 

Database Direct

Database Direct allows clients to perform name searches and obtain copies of UCCs and Tax Liens
 

Federal & State Tax Liens

Don't leave your clients and company at risk by revealing potential Tax Liens. 

Reminder:

Termination does not make a UCC inactive. A UCC is only made inactive upon it’s natural lapsing.

Learn more here: www.law.cornell.edu/ucc/9/9-515

NOT INTENDED TO PROVIDE LEGAL, ACCOUNTING OR OTHER PROFESSIONAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.
 

Capitol Lien has been the proven resource to the Factoring Community for nearly three decades. Factors nationwide rely on us for our variety of comprehensive & timely due diligence research options to assist them in making decisions with confidence.

UCC & Tax Lien Searching in all jurisdictions NATIONWIDE.

We search nationwide for UCCs & tax liens, retrieve copies, & submit UCCs for filing. Capitol Lien can locate liens by debtor name or by specific file number.

With over 4,300 filing offices across the United States, it is not always easy to determine if a borrower is “free & clear” of potential adverse filings. Our research coordinators utilize an array of tools to provide accurate information.

Nationwide Services

CORPORATE SERVICES

Capitol Lien has extensive experience processing corporate filings & document retrievals nationwide. We would be happy to help you obtain Articles of Incorporation or Organization along with Amendments, & Certificates of Good Standing.


FACTOR FOR THEIR TRACTOR? WAIT... Diligence is Due.

Our services will help you to assess priority of a secured interest before filing, assure preservation of an already perfected secured interest, & determine if a client or potential debtor is in Good Standing with state agencies. Performing thorough due diligence will give you more insight, peace of mind, & deliver relevant search results that adhere to your needs in order to seamlessly move forward with business. Count on Capitol Lien to assist you When Diligence is Due.

Capitol Lien is a vendor of the International Factoring Association (IFA). Also affiliated with the Turnaround Management Association (TMA) and the Commercial Finance Association (CFA).

Today when you file through the Minnesota Secretary of State's office you cannot add attachments. But guess what? Capitol Lien has the ability to e-File your UCC forms along with any PDF attachment; whether it's a collateral exhibit, inventory list, invoice, etc. Once we review your filing for accuracy, we have the ability to file it instantaneously.

While this service is both rare and exclusive, there are no additional fees or premiums "attached," and every filing receives the diligence we are famous for. We provide you with an instant recorded UCC filing as well as instant peace of mind.

When diligence is due.


Did You Know?

Once you file a UCC or lien, it can become out of sight, out of mind. However, conducting a Post Lien Search is of the greatest importance for double checking to make sure the filing is on record and indexed correctly. We offer discounted service fees when you select this service in conjunction with submitting your UCC through [2]E-Z File.

Go For the Reverse Search

Also known as ‘Secured Party Search’ this process reveals UCC financing statements that are filed by that specific secured party rather than by the debtor name. The search criteria used is reverse of a regular UCC search. In the states where this is available you may also be able to filter the search by city or zip code(s). Capitol Lien offers Secured Party Searches in selected States for $100 per name.  Prices vary by state and some of those states vary by number of results. Please note that some states do not allow for these searches at all. Here are a few more services to run with: 

DATABASE DIRECT

  • MN - Database & Image Library
  • WI- Image Library
  • Enhanced Search Logic
  • UCC & Tax Lien Copies Instantly
  • $3 Debtor Name Searches
  • $2 per Doc for Copies. 

UCC E-Z FILE

  • Instantly e-File with Attachments
  • Comprehensive Reporting Capabilities
  • Track Filings for Continuation

Parting Thoughts on the Paper Clip

The more advanced technology becomes, it's easy to overlook the need for basic usefulness. Take the paper clip for example, since its introduction in the late 1800s, its utility remains timeless. You might think of the online tools and personal touch Capitol Lien provides in the same way--we hold all things together for you with diligence. So wire us into your needs today.

Put our experts to work for your business, call Ryan Baker at 1-800-845-4077.