UCC Article 9: What You Need to Know, Part 5
Clint M. Hanni
UCC Financing Statements
Once the loan documents have been signed, it is imperative from the lender’s point of view that a UCC financing statement be filed in the proper location to “perfect” its interest in the collateral. This is a routine task that is easy to overlook in the rush to close a loan. Multi-million dollar loans have been completely uncollectible because someone forgot to file the financing statement. The takeaway is simple: don’t forget to file!
Beyond simply filing the UCC financing statement, there are three fundamental issues that the lender must get right.
First, file in the right place. UCC Article 9 has a simple rule for finding the right place to file the UCC financing statement—file in the state where the debtor is located. For debtors that are business entities, such as corporations or limited liability companies, regardless of where they may have their corporate headquarters, they are deemed located in the state where they filed their organizing documents, such as articles of incorporation or certificate of organization.
Second, get the name of the debtor right. The general rule is that a UCC financing statement is effective only if a searcher could find it by searching the state’s database with the debtor’s correct name. What this means in practice is that you must list the exact legal name of the debtor on the UCC financing statement. This includes commas, periods, spaces, hyphens and all other incidental characters. For corporate entities, the best way to get the name right is to request that the debtor provide you with a good standing certificate from its state of organization, which will list the debtor’s exact legal name. DBA’s are not good enough. There are endless horror stories of misspelled debtor names that spelled disaster for lenders.
Third, get the collateral description right. All UCC financing statements must include an indication of the collateral. If the collateral is all the debtor’s assets, then you can simply list “all assets” in the collateral box (but remember that this approach does not work in the security agreement itself). If the collateral is a subset of the debtor’s assets, consult the signed security agreement and use its collateral description for the financing statement.
When it comes to UCC Article 9, small errors can be catastrophic. It will be well worth your time and money to consult an attorney with UCC expertise.
Clint M. Hanni is Of Counsel to Richards Brandt Miller Nelson. He is a member of the Business Transactions & Corporate Governance, Banking and Finance Law, Business Bankruptcy and Creditor Rights, and Real Estate Transactions & Litigation practice groups.