What this is: This article highlights 11 common errors on UCC financing statements and how to avoid them, emphasizing the critical importance of accuracy in the debtor's name and other key details.
What this means: Understanding the detailed requirements outlined in this article is crucial for anyone involved in preparing UCC financing statements. Mistakes can lead to rejections or could cause a UCC filing to be deemed seriously misleading and ineffective by a court, jeopardizing the lender's secured interest. The article serves as a reminder that accuracy in preparing filings is not just procedural but can have significant legal implications.
Even what seems like a minor error on your UCC filings can result in rejection or a filed UCC that could be deemed seriously misleading as defined in Section 9-506 after filing. Either of these situations can negatively affect the priority of the lender’s security interest. However, not all mistakes are created equal. Some are more damaging than others, which is why we’ve put together a list of the top 11 mistakes we see on UCC filings so you can prepare UCC financing statements without making the same or similar errors. Avoid the pitfalls below, and you’ll reduce the risk of your filing being rejected or filing a UCC that may be deemed seriously misleading and, therefore, ineffective later.
1. Failure to Indicate the Correct Name of the Debtor in the Debtor Name Field(s).
We still see UCC filings prepared with the entity name followed by “a Delaware Limited Liability Company” or “DBA” as though it were part of the name. If there is a desire to include a former name, name variation or trade name, insert that party name in the additional debtor name field on the financing statement. The only way to be sure you have the correct debtor’s name is to review the charter document and any amendments for registered organizations and usually the unexpired state-issued driver’s license or unexpired state-issued ID for individual debtors. The name on the UCC filings should be styled to match the name on these sources.
In addition, we often see filings involving trusts prepared incorrectly with the trustee’s name in the debtor box. Filings involving trusts should either have the trust’s name in the debtor box or the settlor’s name if the trust does not have a name.
2. Submitting UCC3s With Multiple Functions in States That Don’t Allow it.
Not all states allow multiple functions (i.e. continuation and a party name change) on a UCC3. Refer to our help piece, Central Filing Offices That Allow Multiple Functions Per UCC Under Article 9, to see which states allow which types of multiple functions.
It’s important to note, however, that even if a state accepts multiple functions on a UCC3 filing, errors can be made where only 1 of the 2 functions are correctly indexed by the filing office. Therefore, while some states permit multiple functions on a UCC3, it is generally not a recommended practice.
3. Incorrect UCC1 File Number Listed on UCC3.
Filers need to be extremely careful providing the UCC1 initial file number on an amendment filing because the state will only reject if there is no such number in their system. If the number listed is an active filing in the filing office’s system but not aligned with the specific filing you intend to amend, they will accept it, connect it with the wrong (unrelated) UCC1 and the filer may never know. This is one of the reasons why a post-filing search is highly recommended.
4. Failure to Include ALL the Debtor or Secured Party (SP) Information on Debtor or SP Name or Address Changes.
Most states treat debtor or secured party name or address changes as “new parties” for the purpose of indexing the filing in their records. Therefore, all the debtor or SP information needs to be included on the UCC3 amendment or the filing may be rejected. For example, if you are filing a debtor address change, you also need to include the name of the debtor. Some filers enter only the information that is changing, probably because the UCC3 form directions seem to indicate that approach.
Note that Delaware is one of the rare exceptions to this and will accept debtor or SP changes with just the changed/new information included in section 7.
5. Completing the UCC3 as a Secured Party Name Change When it is Intended to Be an Assignment.
We have no way of knowing whether a name change really should be an assignment when we review clients’ filings, however, sometimes our staff asks the client about it if the new name on an SP name change appears to be totally unrelated to the original secured party name. When we’ve done this, we’ve often found that the filing should have been prepared as an assignment.
6. Failure to Include the Debtor Name on UCC3s in States That Require it.
There are several states whose UCC filing rules require the debtor’s name on a UCC3 regardless of the type of amendment. We recommend that you put the debtor’s name in Field 10 (Optional Filer Reference Data) except in Georgia and Rhode Island, which prefer that the name be listed in Field 6.
Note that Florida and Montana also require the secured party’s name on UCC3 filings. Refer to our help piece, Non-Uniform UCC3 Requirements Under Article 9, for these and other state-specific UCC3 requirements.
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7. Failure to Include the Legal Description of the Real Property on UCC3 Fixture Filings.
Local jurisdictions usually reject UCC3s if the legal description of the property is omitted. In addition, remember to check Field 1b on UCC3 amendments, which indicates that the UCC financing statement amendment is to be filed [for record] (or recorded) in the real estate records.
8. Failure to Include Tax Information in States That Require it.
Florida has a documentary stamp tax and Tennessee has a recordation tax. Alabama and Maryland have taxes associated with local UCC fixture filing.
9. Providing Additional Debtor or Secured Party Names on an Exhibit, Instead of the Designated UCC Form Fields.
Doing so, either on paper or electronic filings, ensures that these parties will NOT be indexed by the filing office. Filing offices do not index these additional parties even when instructions are provided to the filing office. Only the parties included in the debtor and secured party fields are included on the filing office index.
10. When Multiple Secured Parties Are on a UCC1, Those Secured Parties Should Act Independently to Maintain Their Interest by Preparing and Filing Their Own UCC3 Amendments.
Filing a UCC3 amendment referencing only one authorizing secured party when multiple secured parties were indicated on the UCC1, or added via a UCC3 secured party add filing later may only affect the one secured party’s interest. As an example, if all secured parties intend to continue a UCC1, all of them should be listed as authorizing the continuation or each party should file a separate UCC3 continuation to continue their security interest.
11. UCC Filers Often Attempt to File UCC3 Continuations Outside the Permitted 6-Month Continuation Window.
UCC3 continuations may only be filed 6 months prior to the lapse date. Attempting to file a continuation statement earlier than that window will typically result in rejection. A filing office may accept a UCC3 continuation after lapse, however, a court would likely find that the original filing lapsed and was not continued based on the clear wording of the statute. (Section 9-515(c) says, “The effectiveness of a filed financing statement lapses on the expiration of the period of its effectiveness unless before the lapse date a continuation statement is filed … Upon lapse, a financing statement ceases to be effective and any security interest … that was perfected … becomes unperfected…” [emphasis is ours]. It is important to keep in mind that acceptance of a UCC filing by a filing office does not ensure legal sufficiency.
Given the complexity and importance of properly preparing and filing UCC financing statements, you may want to consider using an experienced service company to assist you. Doing so can help you avoid unnecessary delays, rejections and other serious challenges.
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.
