UCC Basics 101
IntroductionThe following information is covered in this
presentation:
-Creation & evolution of the UCC -What does perfection do? -Upcoming revisions to RA9 -Where & what forms to file? -Types of Searches to perform -Contact UCS
Creation of the UCCCreated in 1952, the Uniform Commercial Code
(UCC) consists of uniform acts coordinating the sale of goods and other commercial transactions throughout the United States.
Debtor & Secured PartyThe code was written to govern security
interests in a way that protects potential creditors & other interested parties.
To do this, the code requires a lender (known as a secured party) to take certain actions before it can enforce the security interest against the claims of third parties. This is known as perfection.
What does perfection do?Allows a company or individual (known as the
secured party) to obtain an enforceable security interest in assets pledged by the borrower (known as the debtor) when taking out a loan.
The most common method of perfection is to file a public notice of the security interest.
Risk & RewardBecause of the public notice, the secured party
does not need to take possession of the collateral & the debtor is free to continue to use it to repay their obligation.
Once the debtor has given the secured party a special claim on its assets, that collateral is no longer available to satisfy the claims of the other creditors.
By granting a security interest it makes credit less expensive and more available to the debtor.
Revised Article 9Effective in most states on July 1, 2001Transition ended in most states on June
30, 2006.Significant Changes:
Filing Location – File where the debtor is located not the collateral
Standard National FormElimination of signaturesExact debtor namesGeneric Collateral Descriptions allowed
Proposed revisions to UCC RA 9
Proposed revisions to the Uniform Commercial Code Article 9 clarify confusion regarding how a debtor’s name should be listed on financing statements. Although these changes are not drastic, they are an important reminder that lenders should exercise caution when identifying the debtor on financing statements. The Uniform Law Commission proposed these changes and has recommended a nationwide effective date of July 1, 2013 with a five year transition period.
Proposed revisions to the Uniform Commercial Code
Article 9-503For registered entities: The proposed
revisions were designed to make it easier for lenders to determine the correct name of entities registered with a particular state. That means the correct name for the financing statement is the name on the “public record” most recently filed in the jurisdiction in which the entity is organized.
Proposed revisions to the Uniform Commercial Code
Article 9-503For individual debtors, there are two options
that states may adopt: (1) the “only if” option: If the debtor has a driver’s
license or other state issued identification that has not expired, the financing statement may use the name on the driver’s license or other state issued identification. If, and only if, the debtor does not have a driver’s license or other state issued identification, the financing statement may use the debtor’s first personal name and surname;
(2) the “safe harbor” option: The financing statement sufficiently names the debtor by providing (a) the debtor’s individual name as determined by state law, (b) the debtor’s surname and first personal name, or (c) the name on an unexpired driver’s license or other state issued identification.
What are the General rules for where to file?Registered Entities located in state of
organization
Non-Registered Entities located in state of chief executive office
Individuals located in state of residence
Foreign debtors deemed to be located in D.C.
When General rules don’t apply.
Location of the “Collateral” controls in these situations:
Fixture FilingsTimber to be cut filingsAs-extracted Collateral filingsAgricultural lien filings (RA 9-301 and 9-302)
What to file?The National Forms are now, by statute, the
recognized standard:
1.UCC1: Financing statement2.UCC3: Amendment3.UCC5: Correction statement 4.UCC11: Search request
States have no need to create and maintain State Specific Forms
Financing Statement:UCC1 The financing statement is the primary
record for providing notice of a security interest. It requires the following information to be effective:
1. Debtor’s legal name, address, state of organization, org. id if applicable
2. Secured Party’s name & address3. Collateral description4. If a fixture, you must provide a land
description
Amendment: UCC3 The UCC3 allows you to amend the UCC1 in
any of the following:
1. Amend or replace or add debtor or secured party
2. Continue the effectiveness of the lien3. Assign the lien to a different debtor or
secured party4. Amend the collateral description5. Terminate the lien
Correction Statement:UCC5The correction statement was not intended to
have any effect on the record. You can’t “undo” what was already filed. Instead, the form allows a party to put comments in the record when the party believes the UCC contained inaccuracies or was wrongfully filed.
Performing SearchesBefore accepting a security interest, a lender
will want to determine if there are existing liens. Hence, a UCC search is conducted.
Once the search is complete, a potential creditor can make arrangements to address any added risk.
Where should you search?For a registered company, the search should
begin in the state of organization.
For an unregistered company, the search begins with the location of its place of business. If the debtor has more than one place of business then search where the chief executive office is located.
For International entities the search is conducted with D.C. Register of Deeds.
Types of searches you can conduct with United
Corporate Services, Inc.UCC LiensFederal Tax LiensState Tax LiensJudgment LiensLitigation SearchesProperty SearchesTitle Searches
Information needed to start a search…..The Debtor’s Correct Legal Name
Must match what listed as a public recordState or county where debtor is registered
The Debtor’s Prior NamesThis Is Strongly Recommended Since Filings Under
Prior Names Usually Still Remain Effective
If a fixture, judgment, state tax lien requires the address
How United Corporate Services, Inc. can help you
with your UCC projectUnited Corporate Services provides search and
filing results tailored specifically to our clients’ needs. Reports sorted by individual debtor per page, or a more comprehensive summary report of all search results on one page, both are easily provided in either .pdf format for secure closings or in Excel format for easy manipulation into your existing closing binder.
United Corporate Services files and searches in over 3,000 jurisdictions in the U.S.
Points to rememberSecurity interest is a tool that lenders use to
manage risk in commercial transaction.
The most common method of perfection is to file a public notice of security interest.(UCC1)
Make sure the names recorded are correct.
A UCC3 can amend or terminate a UCC1.
UCC searches reveal existing liens and can determine the relationship between borrower and lender.
Where can I get more information?
Email [email protected] or contact a Project Manager directly.
Request a username and password for UCS Connect at [email protected]
Visit UCC Services at www.unitedcorporate.com