By Paul Hodnefield
More than a year has passed since the 2010 Amendments to UCC Article 9 (the “Amendments”) took effect in the majority of states. Among other changes, the Amendments established new rules for the sufficiency of individual debtor names in UCC § 9-503(a)(4) using the name indicated on the person’s driver’s license.
Despite the important role a driver’s license now plays in determining the correct name of an individual debtor for purposes of the financing statement, some UCC filers still do not fully understand its proper use in the filing process. This article offers best practices for using a driver’s license as the source of an individual debtor name.
As a threshold issue, those who prepare and file UCC records must be aware that the individual debtor name sufficiency rules are not the same from state to state. For example, some states included a state-issued ID card as a statutory alternative to the driver’s license while others did not. Two states, Montana and California, enacted non-uniform versions of § 9-503(a)(4). Three other jurisdictions, Oklahoma, the U.S. Virgin Islands and, as of August 1, 2014, New York, still do not have the Amendments in effect. As a result, UCC filers must be careful to review the current version of § 9-503(a)(4) enacted by the state of filing to determine exactly what rules apply.
Filers may struggle with other driver’s license-related issues when preparing UCC records. One concerns the role of the debtor’s driver’s license when identifying the jurisdiction in which to file a record. It is tempting to assume that a UCC record must be filed in the state that issued the debtor’s driver’s license. In fact, the driver’s license plays no role in calculating where to file a financing statement. The filing location must be determined well before the filer considers the driver’s license.
Another misconception concerns the debtor’s address for purposes of the financing statement. Filers often assume that they need to provide the mailing address indicated on the debtor’s driver’s license. That is not the case. Article 9 does not require the driver’s license address to appear on the financing statement. The filer must independently establish the debtor’s mailing address for purposes of the financing statement. That may coincidentally be the same as the driver’s license address, but there is no necessary connection. People often move to a new residence without making timely changes to their driver’s license.
The only relevant information on the driver’s license is the debtor name, the state that issued the document, and the expiration date. No other information on the driver’s license, including the license number, licensee address or other personal information, is required when filing a financing statement.
In practice, consulting the driver’s license is the last step for determining the individual debtor name. A filer must follow a three-step process to determine the correct individual debtor name for purposes of the financing statement.
Step 1: Determine the Filing Location
The default rules under § 9-301(1) for the law governing perfection and, therefore, the filing location, is the law of the jurisdiction where the debtor is located under § 9-307. An individual debtor is located at his or her principal residence. Once the filer identifies the debtor’s principal residence, then that state’s version of § 9-501 specifies the correct filing office within the state.
If the record to be filed is a fixture filing, then § 9-301(3)(A) provides that the law of the jurisdiction where the fixtures are located governs perfection. That can be a different state from the debtor’s principal residence.
Step 2: Identify Source of Individual Debtor Name Based on Filing Location
The filer must consult the version of § 9-503(a)(4) enacted by the state where the record is to be filed to determine what document, if any, will serve as the sufficient source of an individual name. Depending on the state, that could be the driver’s license or, if the alternative is provided in statute, the state-issued ID card. The driver’s license or state-issued ID must have been issued by the state where the UCC record will be filed and it must be unexpired. Otherwise, the document cannot serve as the sufficient source of an individual debtor name.
A UCC filer may occasionally confront a situation where a debtor has been issued more than one unexpired qualifying source document, such as both a driver’s license and state-issued ID card. In that case, § 9-503(g) provides that the one most recently issued serves as the source of the debtor name.
If the debtor lacks a qualifying source document (unexpired and issued by the filing state), then the filer must use the second-tier safe harbor rules and provide either the “individual name of the debtor,” whatever the filer determines that to be, or just the surname and first personal name of the debtor.
Step 3: Transcribe the Debtor Name to the Financing Statement Name Fields
Once the filer determines that the driver’s license or state-issued ID card is unexpired and issued by the state where the record is to be filed, then the name must be transcribed to the financing statement. The filer is solely responsible for correctly entering the individual name components in the corresponding financing statement name fields. Generally, that process poses little problem for the filing party. However, driver’s licenses rarely label the separate components of an individual name. Unusual cases may arise where the filer cannot clearly determine how to map the name components to the correct UCC form field.
When that happens, it is important to keep in mind that the new driver’s license rules were intended to provide secured parties with greater certainty that a particular individual debtor name would be sufficient. However, the rules were never understood to offer a perfect solution. There are still situations where the filer must provide one or more name variations as additional debtors to ensure the financing statement provides whatever name a court later determines to be correct. A filer must be prepared to provide one or more name variations in those rare cases where it is not clear how to correctly transfer the name from the driver’s license to the UCC record.
The Amendments did simplify the process for determining the correct name of an individual for UCC filing purposes. However, filers must remember that it is not a matter of simply transferring the name on the driver’s license or state-issued ID card to the debtor name fields on the financing statement. First, the filer must verify that the source document meets the statutory requirements of § 9-503(a)(4), specifically that the document is unexpired and issued by the state where the UCC will be filed. If the document does not meet those criteria, then the filer can provide either the individual name of the debtor or, in the alternative, the surname and first personal name of the debtor.
CSC has created a helpful checklist for determining the correct name of an individual debtor. The checklist and much more information on the Amendments are available at http://csctransactionwatch.com/amendments/. Visit cscglobal.com to request a consultation from a UCC specialist.
Paul Hodnefield is Associate General Counsel for Corporation Service Company and a frequent speaker/writer on UCC search and filing issues. Please feel free to contact him with questions or comments at email@example.com, or 800-927-9801, ext. 62375.