The Basics of UCC Searching and Filing
Uniform Commercial Code (UCC) filing, searching and monitoring can be complicated between debtor name variation, search logic differences, and various filing procedures. But filing, searching and monitoring properly can save your firm from many problems.
Getting and staying organized, paying attention to detail and keeping close track of the changes that may impact your filing position can be easy with the help of a few best practices.
Join Russ Lash of CSC® for a free webinar to learn:
- Debtor name ins-and-outs
- Common UCC pitfalls
- Hints for better UCC-1 and UCC-3 forms
- Easier options for successful debtor tracking
Disclaimer: Please be advised that this recorded webinar has been edited from its original format, which may have included a product demo. To set up a live demo or to request more information, please complete the form to the right. Or if you are currently not on CSC Global, there is a link to the website in the description of this video. Thank you.
Annie: Hello, everyone, and welcome to today's webinar "UCC 101: The Basics of UCC Searching and Filing." My name is Annie Triboletti, and I will be your moderator. Joining us today is Russ Lash. Russ is a Financial Account Manager at CSC. He is responsible for building relationships with customers. And since joining CSC in 2010, Russ has improved the customer experience by shortening workflow turnaround time and decreasing processing times, including improving Uniform Commercial Code delivery times. And with that, let's welcome Russ.
Russ: Thanks, Annie, for the introduction. Welcome, everyone. Before we begin, I'd like to share a little bit of background of CSC. We are the business behind business, founded in 1899, so we've been around a long time, 120 years, actually, this year. We're a global company headquartered in Wilmington, Delaware. We have a very strong domestic presence, but an ever-expanding presence around the world. Half of the time we've been around for 120 years, 60 years, serving the financial industry, over 6 million UCC transactions processed annually, and over 8 million UCC transactions monitored. Also CSC is the largest U.S.-owned provider of the following services: lien related services as in the UCC search and filing service, registered agent, entity and litigation management, and also digital brand services.
So the agenda for today, questions to ask yourself, UCC searching practices, UCC filing practices, and UCC monitoring information. Also, arming yourself with CSC resources. Then, getting into the CSCFinancialOnline demo, in which I'll show you the feature services, how to navigate the platform. And what I'll also do is I'll run a UCC search and also prepare and submit a UCC filing, and then we'll end with questions and answers.
Questions to ask. Are you following searching and filing best practices? Another question would be, are you filing against the right debtor names every time? And then also, are you monitoring your portfolio for changes that may affect your lien position? All very important questions to ask.
Searching. So here we have a list of, you know, different types of entities, searching best practices over here in the green little boxes, we have individuals, registered organizations, collateral administered by decedent's personal representative, collateral held in a trust that is not a registered organization. And then also, you know, where to begin with those searches.
So over here with individuals, you have the starting point for every UCC search conducted on an individual is the driver's license. With registered organizations, you want to use the Public Organic Record, so you want to use like articles of incorporation retrieval. Collateral administered by decedent's personal representative, you'd want to search the name on the deceased individual. And then, the last one, you'd search on the name put forth in the trust documents. Now, if there's no name, you'd want to search on the settlor.
And also down here at the bottom, in the blue, you know, always include name variations for due diligence purposes, very important. So we employ a special search logic in CSCFinancialOnline to capture name variations and also misspellings.
State search logic, you know, what you must know. State's search logic in minute detail, you know, things to look at, how the search will perform in all circumstances. And then also, you know, looking at a state's historical indexing practices. So what we use on CSCFinancialOnline, again, is in the Search Center is a truncated search criteria, so in a way to capture all name variations, any kind of deviations for that name. Sometimes there's a problem, you know, the names get indexed incorrectly at the state jurisdiction, and then, you know, as far as capturing, doing as much due diligence as possible with those names.
Next up is filing. So with filing, you know, filing you want to get the debtor name right. And, you know, the most important piece of information on a UCC filing is the debtor name. So you want to understand the impacts of the 2010 amendments. Also follow best practices for filing against individuals and registered organizations.
So with individual debtor name, there are two rules when determining debtor name on UCC filings — the Only If and the Safe Harbor. So the Only If rule states, "The debtor must be exactly what appears on the individual's driver's license." Also it's sometimes called Alternative A. So what this means is it's very strict for the filer. And then also if the driver's license is expired or not issued by the filing state, you want to default to the Safe Harbor.
So the Safe Harbor, you know, here on the left we just went over the Only If, and then on the right the Safe Harbor. Safe Harbor is different than the Only If. With the Safe Harbor, it shows the name can be what appears on the driver's license, but other names may work as well. What's different is Safe Harbor is sometimes called Alternative B, and it would be more forgiving for the filer.
So what we have here is a map of the U.S. It's showing you what states are enacted with Alternative A, the Only If rule, and also which states are enacted with Alternative B, the Safe Harbor. So you know that an overwhelmingly majority of these states are the Alternative A/Only If, and just a handful states are enacted with Alternative B/Safe Harbor. And you notice a very big state, Delaware, for UCC searching and filing is in the teal. It's enacted with the Safe Harbor.
Some case studies, some examples here. Some examples here as far as crossing your t's and dotting your i's. So there's a case here, Markt, 2017 Bankr. As of July 1st, 2013, the sufficiency rules in most states require that a financing statement to provide the name of an individual debtor exactly as it appears on their active, state driver's license. So here's an example of an issue that was a case here. A borrower named Ronald Mark Nay, so he financed two pieces of equipment. His driver's license actually contained a typo and listed his name as Ronald Markt Nay. So Mr. Nay then filed bankruptcy, and then the secured party on that filing lost its claim on the equipment as the name of the filing was found to be seriously misleading.
So here's another case, as far as making sure you fill in your UCC form correctly, Voboril, 2017 Bankr. So what happened here was a loan was made by the First Bank Financial Centre to Stephen R. Voboril granting the security interest in a promissory note payable to the debtor. So the UCC was filed, but the financing statement listed the debtor's name in the "Organization's Name" field of record. What the problem was, because this is an individual, Mr. Voboril should have been entered in the individual name under the UCC filing instead of the organization name. So what happened is that Mr. Voboril filed for bankruptcy, and the filing was determined to be misleading as the debtor's name was not properly provided. So, in this case, First Bank Financial Centre lost its claim.
So this also brings the Savings Clause. In both of these cases, the Savings Clause was brought up. So the Savings Clause states that if a search in the public record using the filing office's standard search logic on the correct debtor name discloses a financing statement that fails to sufficiently provide the debtor name, the filing is not seriously misleading. So here the Savings Clause did not apply to these situations.
Also, searching on name variations will always be essential because of indexing errors. Like I said before, errors can happen at the jurisdiction. At these jurisdiction offices that they could put in the wrong name and then there's an error there. Filer errors made effective by later changes in the search logic, and then not all filers are subject to the same rules.
Next up is to review corporate debtor name best practices. So as far as verifying the corporate debtor name, you have a list of different entities here and then also, you know, where you want to search.
So the first one is corporations/LLCs. Tat seems to be a really popular one among the four here. So there, you'd want to start at the public organic record. You want to search the public organic record with an articles of incorporation search.
Next up would be a government charter entity. So for example, a farm credit bank, you want to look at the charter document.
And then next up business trust. Let's say in Massachusetts, you want to look at the record filed with the state under the state law.
And then lastly, entity created by legislation, you know, some of these entities created by legislation, like as we know, you know, recent years with the Fannie Mae statute that created the entity.
The name on the UCC must match articles of incorporation. So this is very important. In fact, there's another case here, another example of, you know, why it has to match the articles of incorporation. And sometimes, even something very small can have a very large impact. So for example here, according to the Articles of Incorporation, Alvo Grain and Feed, Inc., that was the name. But see it was filed with the debtor name on the UCC as Alvo Grain & Feed, Inc. So as a result, the financing statement was found to be seriously misleading, and the secured party lost a large claim because something as small as an ampersand difference that can leave your UCC filing unperfected.
UCC Filings: Where to File. You may ask yourself, where do I file my UCC? You know, these are important questions. Well, the general rule is to file in the central filing office, usually the secretary of state office where the debtor is located. And by located, it means where that debtor is organized or incorporated. You know, as with a lot of rules, you know, there's an exception. So the exceptions to this is where, you know, you have a lot of the states would be filed at the central office. Georgia and Louisiana are different. Georgia would be filed at the county level, and Louisiana because they don't have counties in Louisiana, they have parishes, it would be filed at the parish level.
But also we have collateral exceptions. So there's different types of filings with the collateral exceptions fixtures, for example, fixtures, timber to be cut, minerals mined from the ground. And then also a filing location for collateral exceptions would be the office where a mortgage would be a recorded on the affected real property. So this would actually be filed in a different index than a standard UCC filing.
UCC Filings: Determining Location of Debtor. So, you know, on the left, there's a pattern here. We're listing different types of entities here or different types of, you know, and the individuals or companies, organizations, and then also showing you where you need to file different types.
So in individual, you know, you'd want to file in a location of the principal residence on an individual.
With a registered organization under state law, you'd want to file where that organization is organized or incorporated in that that area in that location. Registered organization under federal law, you'd want to file where it's designated by law or by District of Columbia. Other non-registered organizations, at place of business, chief executive office if there's more than one place of business. And also lastly, jurisdictions without a filing requirement would be in Washington, D.C.
With that, we have monitoring options. And then, you know, portfolio monitoring we offer. So portfolio monitoring, you know, changes in your debtor's name or status can affect your lien position. It's crucial to monitor your portfolio for changes and prevent lapsed filings. And also there's simple, automated ways to receive alerts when things change.
So we offer four different types of portfolio monitoring: expiration tracking, corporate tracking, debtor tracking, and bankruptcy tracking, which I'll highlight.
So first off, expiration tracking. With expiration tracking, we'll email notifications of approaching dates. So with expiration tracking, and I'll show you when we get into CSCFinancialOnline, there's actually two ways you can track expirations. You can track it within the platform, or we can send you an expiration report by email. And down at the last bullet point, notification frequency of your choice, we can send it to you either daily, weekly, or monthly. Copies of acknowledgments, filing numbers auto-populated into UCC-3, which is really convenient, and then flexible reporting.
Another case study. So here we have an example of a furniture store, Lifestyle Home Furnishings, LLC. So failure to File Debtor Name Amendment leaves lender partially unperfected. So here we have ownership of Factory Direct, LLC changed. New owners then changed the name from Factory Direct, LLC to Lifestyle Home Furnishings, LLC. So the debtor did not notify the bank of the name change. Sometimes this will happen. Your debtors will not notify you of a name change, so you have to be aware. You have to monitor these filings from a debtor's standpoint, debtor filings to make sure that you're notified, you know, in case there's an acquisition or, you know, a name change of any kind.
So, as a consequence, the bank did not file an amendment or a new financing statement. So then what happened, on April 7th, 2008, the debtor filed for Chapter 7 bankruptcy. So then trustee filed an adversary proceeding to avoid the bank's security interest and moved for a partial summary judgment on the grounds that the bank became unperfected four months after the debtor changed his name.
So the point of this example is why you should be always monitoring your UCC filings. It doesn't end when you file the UCC. And also, you know, you should not be on the hook for somebody else's mistake. You know, you should be actively checking activity, whether it's bankruptcy, if your debtor is going to file for bankruptcy, if they change name, if they're stacking debt, aside from any kind of loan that you might have issued them.
So here with corporate tracking, corporate Tracking will notify you when a corporate debtor changes their corporate name, they fall out of good standing, or if they dissolve or merge. Debtor tracking will alert you to new filings against your debtor, including lending and terminations, even yours. It will also show you if, you know, what that will show is if your debtor is taking on more debt. We'll send email alerts with links to the tracking results. And then also allowing you to evaluate findings and request copies if needed.
And then another form of tracking we have is bankruptcy tracking. So any delay in responding to bankruptcy filings can be costly. So we'll alert you if and when your debtor files for bankruptcy. We'll monitor court reports or court records and compare them to your debtor name, street address, city, state, and ZIP code.
Next up is arming yourself, CSC resources. So another feature we have is called Secured Party Representation, or also we commonly call it SPRS. So with SPRS, you know, as you know, UCC financing statements are public record. So that means that anyone can access your customer list by running a search. So by using a secured party representative, like us, like CSC, will prevent your competitors from identifying filings. And then also SPRS centralizes inquiries. So we have a dedicated team here at CSC that handles that, SPRS inquiries, because then, you know, what they do is they'll take the SPRS inquiry, and they will then forward it on to the affected secured party and let them know that there's been an inquiry made, and then the secured party can then take action however they deem appropriate.
And then next up is CSCTransactionWatch, where CSC will provide you with an archive of filing office closings and communications, pending and new legislation, UCC Article 9 updates. So a couple of examples right there shows any kind of communications that we would send to you and then also CSCglobal.com/resources offers white papers, filing guides, and on-demand webinars.