UCC 201: Advanced Issues for Searchers and Filers

Advanced Issues for Searchers and Filers

Know the basics of Uniform Commercial Code (UCC) searching and filing, but need a deeper understanding of purchase money security interests, fixture filings, and portfolio management? Then join us for a deeper look into more complex issues that can trip up UCC searchers and filers.

Join Russ Lash of CSC for a complimentary follow up to our UCC 101: The Basics of UCC Searching and Filing webinar to learn best practices surrounding:

  • Purchase Money Security Interests (PMSI)
  • Fixture Filings
  • Post-Filing Pitfalls

This webinar is important for real estate, commercial, and corporate paralegals, legal assistants, legal secretaries, analysts, commercial loan officers, and anyone who works with UCC search and filing.

Slideshare


UCC 201: Advanced Issues for Searchers and Filers from CSC

Webinar Transcript:

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.

James: Hello, everyone, and welcome to today's webinar, "UCC 201: Advanced Issues for Searchers and Filers. My name is James Wier, 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 implemented or 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, James, for the introduction. Welcome, everybody, to the webinar. This is the sequel to the UCC 101 webinar that was given back in February. And, again, welcome aboard everyone.

Before we get into the content, here are some facts about CSC. We are the business behind business. We've been around a long time, 120 years. That picture to your right, that is a picture of our global headquarters in Wilmington, Delaware. We have over 60 years serving the financial industry, with over 6 million UCC transactions process annually, and over 8 million UCC transactions monitored. So we see a lot of UCC work.

Also, CSC is the largest U.S.-owned provider of the lien related services, such as UCC, registered agent, entity and litigation management, and then also the digital brand services.

So agenda for today, we're going to get into PMSI or PMSI as it's also called, filings and procedures with that. And then we're going to get into fixtures, so fixture filings and then also filings on fixtures. We're going to talk a little bit about post perfection pitfalls, some CSC resources that are valuable for your portfolios. And then also I'm going to show you the CSCFinancialOnline platform. And then we'll close with some questions and answers.

So the first up, Purchase Money Security Interests. What is a PMSI? So 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. So this is used by a seller of goods to secure the prices where a person who advances funds to enable the debtor to acquire rights in the goods. So what this does is it actually gives a "super priority" for the PMSI secured party limited to the good that they enabled the debtor to acquire.

Here are some purchase money security interest concepts. So the eligible security parties, secured parties, for a PMSI are the seller of goods, this could be equipment, also lender that finances the acquisition of goods, this could be inventory, and then also the consigner of goods.

Now, there's also the burden of proof, and that is the secured party has the burden of establishing the extent to which the security interested is a PMSI. So strict compliance is essential. You must follow all the steps needed in order to completing the PMSI.

PMSI priority example. So here, we have a very good example of how PMSI works. PMSI, again, is all about priority. So here in this picture, in 2010, well, actually you have three secured parties. In 2010, you have the first security party. They file a UCC on all assets. Then a year later, secured party two then gets a little more specific, and they file the UCC on equipment. And then a year later, the third secured party comes around and then files a PMSI UCC on a laser wigit Model 1234. That's very, very specific.

So what does this tell us in a PMSI? Well, what it tells us is that secured party three now has priority in the specific machine, the laser wigit Model 1234. So then going back to secured party one, they have priority in all the other assets, including all the other equipment. So, you know, secured party two is kind of stuck with, you know, they're being out of luck here. So three has the priority, one has everything else, and then number two is just kind of stuck, out of luck.

How is a UCC record filed to perfect a PMSI different from any other UCC record? Well, first of all, there's no special form. You're still going to file a UCC-1 form.

Also, there's no statutory requirement to indicate the financing statement is a PMSI. There's nothing special listed in the collateral description. So thereby general collateral sufficiency rules apply.

PMSI perfection deadline. What's a little bit different in the deadline for the filing here is that the secured party must perfect the PMSI before or within 20 days after the debtor receives possession of the collateral. So what that means is if I'm selling a piece of equipment to someone, and he or she is financing it, I need to file my UCC on or before 20 days from the date that he or she gets that piece of equipment.

Now, there are some exceptions to the 20-day rule. You know, you have a list here, the PMSI in inventory, consignments, livestock PMSI, non-uniform state amendments, and also consumer goods. We're going to focus mostly on the top two ones today — the PMSI in inventory and consignment. Those are very common among PMSI filers.

So the first one, PMSI in inventory, perfection requirements. The PMSI must be perfected before debtor receives possession of the inventory collateral. And here in inventory, the 20-day rule does not apply.

The notice requirements, there are some notice requirements that are involved with this and the PMSI in inventory. The secured party must send an authenticated notification to the holder of a conflicting security interest. So that means that the recipient must receive this notification before the debtor receives possession of the inventory. The notice is effective for five years. And a notice has specific content requirements, such as the notice usually needs to be a letterhead with the company logo.

The next one is consignments. When a consignor's interest is a PMSI in inventory. So you have the rights of the consignee. A 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. Again, follow the same process as you would with inventory.

Consignment PMSI requirements. You want to perfect by filing before the debtor receives possession of the consigned goods. You want to send a notice to the holders of conflicting security interests. And then you want to ensure the notice is received before the debtor receives possession of the consigned goods. So the PMSI notices need to be sent in some form of trackable delivery, such as, like, certified mail.

PMSI in inventory, general guidelines. So the first thing you want to do is you want to file the UCC. Then the second step is then you want to run a UCC search to identify other security or other secured parties that could have, you know, potentially conflicting collateral. The through date on the search should be after your filing date. And then you want to send PMSI notices, again, through some sort of trackable delivery, like certified mail. And then lastly, you want to deliver the inventory collateral.

PMSI whitepaper. Now, this is available for download in the Resource Widget on your console. This is a very useful tool that I would urge everybody to take a look at, especially with PMSI filers, because this was written by our Associate General Counsel, Paul Hodnefield. He's a speaker and writer on UCC and also PMSI procedures. And it's a very nice tool, so take a look at that and it can help you with any questions that you have with PMSI.

So next up, everybody, is the UCC fixture filings. So we're going to get into what's a fixture anyway, what's in general filing guidelines, and then also showing you how to fill out the addendum, because that does require a separate step to the UCC filing form.

What is a fixture? So generally, fixtures are goods that have become so related to particular real property that an interest in them arises under real property law, under UCC Article 9.

So some things to take into consideration about the determination of a fixture include the ease of removal/degree of affixation, you know, how difficult is it to remove or how attached is it? Secondly, the intention of the parties. And then also how essential the presence of the fixture is to the functioning of the real property. So that's very important too. How important is it to the real property as far as how it works with that, the viability of it.

So what we have here is a court fixture determinations. We have a list of fixtures on one end, and then we have a list of fixtures on the other end, or that are not fixtures or considered not fixtures. So you might ask yourself, "What would I consider a fixture or not a fixture?" Well, if you notice, your fixtures, grain bins are both consider fixtures and not fixtures. Airplane hangers, the same way. Theater chairs, fixtures. Not fixtures, large engine, irrigation equipment, hog buildings.

The thing is, ultimately, only the courts can determine a fixture on a case-by-case basis. So that might kind of give way to if you don't know what a fixture . . . If it qualifies as a fixture or if there's a question, I would treat goods as both the fixtures and also personal property. And what that means is that here, it shows filing guidelines, filings on the fixture versus fixture filings These are two separate filings.

The UCC fixture filings are generally filed in the county in which a mortgage would be recorded on the affected real property. So that'd be a county level filing.

The filing on a fixture is done in the centralized filing office in the state which the debtor is located. So that means that's a state-level filing. So the fixture filing is a county-level filing. The filing on the fixture is a state-level filing.

And then also a mortgage may also cover fixtures as well.

So you might ask yourself, "What forms to file?" Well, the filing on the fixture, actually on both them, you're going to file a UCC-1 form. But on a filing on a fixture, you just need to file the UCC-1 form, and that's it. On the fixture filing, you need to file the UCC-1 form, but there's also an addendum that you need to fill out on the fixture filing.

So here, this shows an example of the difference as far as where you file, the filing location on a filing on a fixture and a fixture filing.

So as we look at the first one, we have, okay, a filing on a fixture. The debtor is a Delaware corporation, okay? They're formed in Delaware. So that means you would file with Delaware Secretary of State. That's a state-level filing.

Fixtures are or will be located at the property in Harris County, Texas. So in the case of the second one, we see it's a fixture filing. Then it will be filed in Harris County Clerk, Texas, because it's filed at the county level and because this is a fixture filing.

And then also, we have this little picture here. This is actually what the filing form will look like at the bottom, or, you know, somewhere on the filing. It's the Sections 13 and 14. But you want to make sure that on a fixture filing, because of the addendum, you are filing out the information. This financing statement is to be filed for record or recorded in the real estate records. That's the number 13 arrow. And then over on the right side, the number 14 arrow, you want to mark that it is a fixture filing.

So to summarize, here are the similarities and differences between a fixture filings and a filing on fixture. So a filing on fixture, it's filled in the central office where the debtor is located, so that's state level. The priority may be subordinated to recorded real estate interests. And this is effective for five years. So it's effective for five years the same way a fixture filings is.

A fixture filing is filed in the real estate records where a mortgage would be recorded on the related real property. So a fixture filing, again, is filed at the county level. The priority based on file date against both filing on fixtures and recorded real estate business. And then again, this is also effective for five years.

Post perfection pitfalls. So with that, we offer different types of like portfolio monitoring; We offer expiration tracking, bankruptcy tracking, corporate tracking, and debtor tracking. And I'll touch base on what all those mean and how those can help you with your UCC filings.

So portfolio monitoring, lets you, you know, if there's any kind of changes in your debtor name or status, it can affect your lien position. It's crucial to monitor your portfolio for any kind of changes and to prevent lapsed filings. That would be, you know, like the corporate tracking and also the expiration tracking. And there's also simple, automated ways to receive alerts when things change.

So the very first thing is expiration tracking. Expiration tracking is a very nice service. Expiration tracking is included with our filing service at no extra cost. And what that means is that when we file your UCCs on your behalf, we will actually include the expiration tracking, and we will monitor all your UCC filings, your entire portfolio, and let you know when they're approaching expiration. So we'll email you notifications of approaching dates. We'll send or show copies of acknowledgments.

Filing numbers auto-populated into UCC-3. So that way, it'll make the UCC-3 continuation a lot simpler to fill that out.

Flexible reporting, and then also the notification frequency of your choice. So you can have an expiration report sent to you either daily, weekly, or monthly, however you want.

Case Study. So here's an example of a case study. This is actually a real case study. The most common post-perfection events that requires prompt secured party action is a change in the debtor's name. So it's very important. If any of your debtors change their name, you want to be notified about that. And here's an example of that.

So here, this is an example of a furniture store. It's called Lifestyle Home Furnishings, LLC. And then down below, failure to file debtor name amendment leaves lender partially unperfected. So what happened here is you have ownership of Factory Direct LLC changed, and then the new owners changed the name from Factory Direct to Lifestyle Home Furnishings, LLC. So there was a name change there in the name of that company, that furniture store. So the debtor did not notify the bank of the name change. This happens. I mean, this happens. You know, these debtors get busy. You know, that might be the last thing that they think about is notifying the secured party to let them know of a name change.

But you know what? Why should you pay for somebody else's mistake, right? I mean, you want to be notified about that. We can go ahead and send you a tracking on that.

So as a consequence, the bank did not file an amendment or a new financing statement. So then, on April 7th, 2008, the debtor filed for Chapter 7 bankruptcy. And then lastly, the trustee filed an adversary proceedings 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 its name. So this is a cautionary tale here with Lifestyle Home Furnishings as far as this would have been a good medium to have used corporate tracking with that.

This kind of brings us back to corporate tracking. Again, we'll notify you when the corporate debtor, they changed their corporate name, they fall out of good standing, or they dissolve or they merge with another company.

And then the other tracking option we have is debtor tracking. So debtor tracking will alert you to any kind of new UCC filings against your debtor, including new lending and terminations. Sometimes our customers, what they have written in their security agreements with their customers, there could be something in there as far as maybe they don't like the fact that their customers could be taking on, you know, more debt until their loan is paid off. So that's a common thing. So this would be good debtor tracking.

You would know the activity of the debtor that you're filing against just to see, you know, if any more new UCC filings are being filed against them. So that way, you know, "Hey, wait a minute. Okay, they're going out and they're getting more loans."

We'll send you email alerts with links to the tracking results, and also allowing you to evaluate findings and request copies if needed.

And then the next tracking, the other tracking is bankruptcy tracking. And that's important too, because, you know, any delay in responding to bankruptcy filings can be costly. So you want to know if your debtor filed for bankruptcy. So we'll monitor court records and compare them to your copies of your acknowledgments, filing numbers auto-populated into UCC-3, flexible reporting, and then also the notification frequency of your choice.

Next up is CSC resources. One, very important resource that we have here at CSC is called Secured Party Representation Services. It's also called the SPRS. A lot of us call it SPRS, and a lot of our customers also refer to it as SPRS. What this means is that UCC financing statements are public record. You know, we all know this. So that means that anyone can access your customer list. By using a secured party representative, it prevents competitors from identifying filings.

So basically, what this means is on your filing, when you file a UCC, instead of showing your name as the secured party, it will show our name as the secured party representative. So that way, you know, somebody can't do a search on your name and find your customer list. So it will shield your name. It will shield your name from any kind of competitors or maybe even, like, marketing companies that are looking to kind of beef up their leads, you know, kind of go out and poach customers.

And then lastly, SPRS centralizes inquiries. So what that means is that we have a dedicated team here called the SPRS team. So what they do is, you know, any kind of inquiries that we get, they go to that team, and then they will then contact the affected secured parties and let them know about that.

And then also next, we have the CSC blog. So CSC provides you with an archive of filing office closings and communications, pending and new legislation, and UCC Article 9 updates, and that includes the whitepapers, filing guides, and also upcoming webinars.