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What is a UCC financing statement and how to make sure it is bulletproof

Filing a UCC financing statement is an important step in protecting one's rights to collateral and is often a critical element of business transactions. Knowing the ins-and-outs of filing a UCC financing statement is essential for ensuring that it is bulletproof, and AnyLawyer's suite of legal-tech tools make this process much easier and faster.

In this blog post, we will explore what a UCC financing statement is, list the type of filings associated with it, and describe how to file and search for a UCC financing statement.

The Uniform Commercial Code

The Uniform Commercial Code (UCC) is a set of laws that govern commercial transactions and contracts. Originally drafted in 1952, the UCC was adopted by all 50 states as a uniform set of laws governing business-related matters. This means that commercial contracts are enforced in the same way across the US. The UCC financing statement is one element of the UCC.

What is a UCC financing statement?

A UCC financing statement - also known as a UCC-1 financing statement or a UCC-1 filing - is a legal document that states that the filer has an interest in a particular asset or piece of collateral. It notifies anyone who searches public records that this asset is already encumbered, and provides legal protection for the holder of the security interest. Should the debtor default on the loan, the creditor might be able to seize the collateral.

The lien can be against a specific collateral, or it can take the form of a blanket lien, which applies to all of the debtor's business assets. Depending on the type of lien, different types of UCC-1 filings may be required.

What are the legal consequences of a UCC-1 filing?

By filing a UCC financing statement, the creditor notifies other potential creditors that they have an interest in the collateral. The filing creates an order in which assets can be seized, in the case of a defaulted loan or declared bankruptcy. Additionally, if the same asset is used as collateral in another loan, the first lender will be prioritized: the second lender will not be able to recover the asset unless the original lender is satisfied.

Types of UCC-1 filings

There are two types of UCC-1 filings: UCC liens against a specific collateral and UCC blanket liens. A UCC lien against a specific collateral is registered with the state and identifies the actual asset that is being used as collateral. This type of filing protects the creditor in cases where multiple assets are being used as collateral, such as when a vehicle is bought with an auto loan but secured by other personal property owned by the borrower.

Specific collateral can come in the form of movable objects, such as cars, boats, and jewelry, but it can also include investment securities, receivables, and intellectual property.

A UCC blanket lien provides protection against all the debtor's business assets, regardless of type or location. It is often used when a large number of assets are involved, such as in the case of corporate loans taken by small business owners that put their entire business up as collateral. If the borrower defaults, the creditor has the right of recovery on all assets, up to the value of the debt.

This type of filing protects lenders from the event that a specific asset is damaged, destroyed, or otherwise loses value. However, a blanket lien offers little protection for borrowers, as the creditor is granted access to all of their assets and could potentially put them out of business.

How to file a UCC financing statement

Filing a UCC financing statement must include the following information:

  • Personal information of the borrower: the filing must establish whether the debtor is an organization or an individual. In the case of registered organizations, the name of the debtor must match the organization's name in the public record. In the case of an individual, their name in the filing should match their name on an unexpired driver's license in their state of residence. Some states, e.g. Delaware, offer a "safe harbor" option, which makes multiple names for an individual acceptable, such as a name under which they own property.
  • Personal information of the lender or the lender's representative: multiple names can be listed if there is more than one lender.
  • Description of the collateral: the description must reasonably identify the collateral. In the case of a blanket lien, an indication that the UCC financing statement covers all of the debtor's assets.

Where to file

Once all the necessary information has been prepared, it is easy enough to file the UCC financing statement with the appropriate secretary of state's office. This does not necessarily occur where the collateral is located, like in the past, but in the state in which either the borrowing organization is registered, or in which the individual borrower resides.

When to file

It is important to keep in mind that the order of filing has an impact on the outcome. A borrower can secure loans from more than one lender, and each lender has the right to file a UCC financing statement. The lender that was the first to file an accurate UCC-1 financing statement (to "perfect" their interest) is also the first to collect on the lien. Once they are satisfied, the lender that was second to file takes their turn to collect, and so on.

How to search for a UCC financing statement

Once a UCC financing statement has been filed, it becomes public record. It can be found using the secretary of state's website, for the state in which the UCC-1 filing was filed. Commercial UCC search engines can be used to simplify the process.

The name of the debtor used for the search must be exact, as results can be affected by small differences:

  • & vs "and",
  • a singular form vs a plural form of a name,
  • typos or extra spaces,
  • numerals (1 instead of "one").

UCC financing statement FAQ

Q: Can the debtor's personal property be the collateral indicated in a UCC-1 filing?

A: Yes, in most cases. However, the debtor must be identified correctly and the description of the collateral must be detailed enough for a reasonable person to identify it.

Q: Does a UCC-1 filing create an ownership interest in the collateral?

A: No, it does not create ownership or any other type of legal rights over an asset. It only creates a lien on the asset, giving the lender a security interest in it.

Q: How long does a UCC-1 filing remain active?

A: A UCC-1 financing statement is valid for five years from the date of filing. It can be renewed before expiration for another five-year period.

Q: Does a UCC-1 filing need to be registered in all states where the debtor has assets?

A: No, only the state in which either the borrowing organization is registered, or in which the individual borrower resides needs to be considered.

Q: Is a UCC filing required for all types of loans?

A: No. Some loan agreements do not involve collateral and thus do not require a UCC-1 filing.

Using AI tools to ensure a correct filing

Filing a UCC financing statement correctly is essential to protect creditors' interests and ensure that the filing stands up in court. However, it is easy to make mistakes when filling out such paperwork. Luckily, AI-based tools can help lenders avoid errors and omissions when filing UCC statements. These tools use natural language processing (NLP) to extract relevant information from documents and can fill in the form automatically, eliminating the risk of human error to ensure a bulletproof filing.

Enforcing security interest with the help of a UCC-1 filing

Filing a Uniform Commercial Code financing statement is an important step in protecting one's rights to collateral and is often a critical element of business transactions. By understanding what a UCC financing statement is and how to file one, lenders can ensure that they will be able to collect their secured interest in the case of a loan default or the debtor's bankruptcy. AnyLawyer's suite of legal-tech tools makes the process of filing a UCC financing statement much easier, faster, and more secure. With the help of AnyLawyer, lenders can be certain that their UCC financing statements will be well-crafted and properly filed.