UCC 201 FOR LENDERS: ADVANCED ISSUES FOR SEARCHERS AND FILERS
Have you attended CSC’s “UCC 101 for Lenders” on the basics of Uniform Commercial Code (UCC) searching and filing and need a deeper understanding of purchase money security interests (PMSI), fixture filings, and portfolio management?LEARN MORE
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Join us for “UCC 201 for Lenders: Advanced Issues for Searchers and Filers” with important information specifically for commercial loan officers and real estate, commercial, and corporate paralegals. CSC’s Russ Lash will cover best practices around complex issues facing searchers and filers, including:
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 201: Advanced Issues for Searchers and Filers." 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's responsible for building relationships with customers, and since joining CSC in 2010, Russ has improved the customer experience by shortening workflow turnaround times 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 explore the content, some background on CSC. We are the business behind business. We've been around 122 years, a long time. We're based in Wilmington, Delaware, with offices worldwide. Strong UCC presence with more than 60 years serving the financial industry, more than 6 million UCC transactions processed annually, and more than 9 million UCC transactions monitored. We also provide solutions to more than 3,000 financial customers, and CSC is the largest U.S.-owned provider of lien-related services, as in the UCC, registered agent, entity and litigation management, and digital brand services.
Today's agenda. PMSI, what is this? Fixtures, what are they? Post-perfection pitfalls, tips to reduce risk. And then, share CSC resources. Then a demo of our CSCFinancialOnline, and then close with questions and answers.
Purchase Money Security Interests. What is a PMSI? Well, according to UCC Article 9, a PMSI is a special type of security interest that enables those who finance a debtor's acquisition of goods to acquire a first priority security interest in the purchase-money collateral, even if another creditor holds an earlier perfected security interest. PMSIs provide a super priority for the PMSI secured party, limited to the good they enabled the debtor to acquire, used by a person who advances funds to enable the debtor to acquire right in the goods, and also used by a seller of goods to secure the prices.
Purchase Money Security Interests Concepts. Eligible secured parties could be a seller of goods, or a lender that finances the acquisition of goods, or a consignor of goods. There is a burden of proof, that is the secured party has the burden of establishing the extent to which the security interest is a PMSI. Strict compliance is essential, so it must follow all of the steps.
This illustration reveals how PMSI operates. It's about priority. There are three secured parties on record. So, from this illustration, we see that there are three different years. In 2010, Secured Party 1 files a UCC on all assets. Then, a year later, Secured Party 2 files a UCC on equipment. And then, a year after that, Secured Party 3 files a PMSI UCC on a laser widget model, number 1234. So what this tells us is that Secured Party 3 has a priority in a specific machine, which is the laser widget, and also the model number. Secured Party 1 has priority in all other assets, including all other equipment, because they filed before the Secured Party 2, which then means Secured Party 2 is probably out of luck.
So how is a UCC record filed to perfect a PMSI different from any other UCC record? Well, there's no special form. Also, there's no statutory requirement to indicate the financing statement is a PMSI, and general collateral sufficiency rules apply.
PMSI Perfection Deadline – General rule. Secured party must perfect PMSI before or within 20 days after the debtor receives possession of the collateral. So there are exceptions to this 20-day rule. PMSI in inventory. Inventory could be raw materials or other materials consumed in a business. Consignment, this would exclude an auctioneer. Livestock PMSI, this would include domestic farm animals and aquaculture. And there are two other exceptions. That would be the non-uniform state amendments and consumer goods.
PMSI in Inventory – Perfection requirements. A PMSI must be perfected before debtor receives possession of the inventory collateral. So here, the 20-day rule does not apply. And the notice requirements, a secured party must send an authenticated notification to the holder of a conflicting security interest. So the recipient must receive the notification before the debtor receives possession of the inventory. The notice is effective for five years, and the notice has specific content requirements.
Consignments – When a consignor's interest is a PMSI in inventory. Rights of the consignee are consignee is deemed to have rights and title to the goods identical to those of the consignor. Also, consigned goods are subject to the claims of creditors and purchasers for value. And consignment PMSI requirements are to perfect by filing before the debtor receives possession of the consigned goods. Send notice to holders of conflicting secured interests. These notices would generally be sent some sort of trackable mail, like FedEx, UPS, or certified mail. And ensure notice is received before debtor receives possession of the consigned goods.
PMSI in Inventory – General Guidelines. Well, first, you want to file the UCC. And then, second, you want to run a search to identify other secured party creditors. So the through date at the state should be after your filing date on that search. And then, thirdly, you want to send PMSI notices. Of course, it would be sent commonly via FedEx, UPS, or certified mail. And then, lastly, you want to deliver the inventory collateral.
We have a PMSI whitepaper. This is available for download in the Resource widget. This is great content on PMSI from our Associate General Counsel, Paul Hodnefield.
All right, up next is UCC fixture filings, key areas: What is a fixture anyway, some general filing guidelines, and then filling out the addendum.
So what is a fixture? Generally, fixtures are goods that have become so related to particular real property that an interest in them arises under real property law, according to UCC Article 9. So some things taken into consideration into the determination of a fixture include the ease of removal or degree of affixation, the intention of the parties, and how essential the presence of that fixture is to the functioning of the real property.
Court Fixture Determinations. So these columns below show that it really depends on the court as to what item is considered as a fixture. So as we see these two columns, on the left, we have fixtures, on the right, we have NOT fixtures. We go down the list here. We have grain bins listed as fixtures, airplane hangar, theater chairs, irrigation equipment. But also, interestingly, that grain bins and airplane hangar are also not fixtures. They can be deemed not fixtures, as well as a large engine and hog buildings. So the main takeaway here is that the courts determine fixtures on a case-by-case basis.
Because of this, the best practice is, if there's any question, treat goods as fixtures, and also as personal property. Well, what does this mean?
It means that there are filing guidelines. There's two types of filings – filing on fixtures versus fixture filings. So UCC fixture filings are generally filed in the county in which a mortgage would be recorded on that affected real property. A filing on a fixture is different. It's done in a centralized filing office in the state which the debtor is located. A mortgage may also cover fixtures.
So you probably ask yourself, "What forms to file?" Well, filing on a fixture, you'd file the UCC-1 form. With a fixture filing, you file the UCC-1 form and also addendum.
Fixture Filing Location Examples. So we have two different pictures here. You have one that's a filing on the fixtures. The debtor is a Delaware corporation. That's filed with the Delaware Secretary of State, the Central Filing Office. And then the second one, you have fixtures are or will be located at property in Harris County, Texas. This is a fixture filing because it's not filed in the Central Filing Office. It's filed at the County Clerk's Office.
Filling Out the Addendum. This screenshot shows that it is important to check these items in relation to a UCC fixture filing. You have this little box here, the number 13, marked as "financing statement to be filed for record or recorded in the real estate records." It's very important that box is checked. And then, also, number 14, "is filed as a fixture filing."
So, in summary, we have a side-by-side comparison of filing on fixtures and fixture filings. On the first item, you'll note, on both of them, the filing location is different. On the second one, the priority may be subordinated to recorded real estate interests on the filing on fixtures. On the fixture filing, the priority is based on file date against both the filing on fixtures and recorded real estate interests. You'll also notice that both of them have the same . . . that they're both effective for five years.
Up next is post-perfection pitfalls.
Portfolio Monitoring. Changes in your debtor's name or status can affect your lien position, so it's crucial to monitor your portfolio for changes and to prevent lapsed filings. So we have simple, automated ways to receive alerts when things change. We actually offer four UCC monitoring options.
First is expiration tracking. Email notifications of approaching dates. You'll receive copies of acknowledgements. Filing numbers auto-populated to the UCC-3, flexible reporting, and the notification frequency of your choice.
Post-filing Changes. Post-filing changes to the debtor name, debtor business structure, or location create some of the most complex issues under Article 9 and can place perfection or priority of the security interest at risk unless the secured party takes action within a short statutory deadline.
Second is corporate tracking. Corporate tracking will notify you when a corporate debtor changes its corporate name, so you can amend your UCC filing, falls out of good standing, or dissolves or merges.
Third is debtor tracking. Debtor tracking will alert you to new filings against your debtor, including new lending and terminations, even yours. It will also send email alerts with links to the tracking results, and it will allow you to evaluate findings and request copies if needed.
And lastly is bankruptcy tracking. Any delay responding to bankruptcy filings can be costly. So bankruptcy tracking will monitor court records and compare them to your debtor name, street address, city, state, and ZIP code.
Next are CSC resources.
Secured Party Representation Services, also known as SPRS. UCC financing statements are public record, which means anyone can access your customer list by running a secured party search. So by using a secured party representative, you can prevent competitors from identifying filings. SPRS will also centralize inquiries. This means we have a dedicated service team to handle these inquiries. So the takeaway here is that this service is beneficial to those in factoring, merchant cash advance, or in other asset-based lending.
Another resource is CSC blog. CSC provides you with an archive of filing office closings and communications, pending and new legislation, UCC Article 9 updates. This includes whitepapers, filing guides, and upcoming webinars. These are all great tools. Please head over to the address below for information.