UCC Revised Article 9
Best Practice Summary

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Once a security interest has been created by the rendering of collateral in exchange for credit or some other funding, upon entering a Security Agreement, the security interest must be "perfected" by filing evidence of such interest. Revised Article 9 (RA-9) of the Uniform Commercial Code (UCC) provides that perfection is completed by filing financing statements (commonly known as "UCC filings") with filing offices in necessary jurisdictions.

RA-9 was effective in all states on July 1, 2001 with the exception of Connecticut (10/1/2001), Alabama, Florida and Mississippi (1/2/2002). It was effective in Indiana on July 1, 2001, however, central filings for farm related collateral were delayed until July 1, 2002. All states and the U.S. Virgin Islands have adopted some version of RA-9. RA-9 has not been adopted in Puerto Rico.

Historically, UCC filings were made everywhere the debtor had tangible property, offices and/or was otherwise operating business. Article 9 was revised in an effort to simplify filing requirements, generally requiring filings to be made only in the state where the debtor is incorporated or located (in the case of partnerships or sole proprietorships). "In Lieu of Continuation Statements" (a/k/a a transition filing) are filed in any new states where filings must be made (i.e. the state of incorporation) to assure that the original filing date remains protected. A transition filing ensures that the original filing date remains effective. Making a new filing rather than a transition filing, effectively changes the filing date to the new date, thereby exposing the creditor to a risk of losing priority.

When the debt is paid in full and/or the security pledge is terminated, the financing statement(s) should be terminated by filing a UCC-3 Termination Statement in the jurisdictions where the original financing statements were filed.

Forms and Preparation

All states accept national forms, UCC financing statements for initial filings as well as amendments, terminations or "in lieu of" filings. National as well as state prepared forms are available at LeapLaw's UCC Connection.

Preparing the UCC:

Debtor Name
The debtor name must be the correct legal name of an individual or the entity as provided the charter or formation documents. Filing offices may reject the filing if any of the following items are incorrect (a) the debtor name, (b) the type of organization, (c) the federal identification number or filing ID number, and (d) the mailing address. If an item does not apply to the debtor (i.e. the debtor is an individual therefore type of organization does not apply) indicate "none" in the applicable section.

Trade Names: Trade names, include a d/b/a, a/k/a, f/k/a or division names, are not necessary or acceptable.

Trustees: When the debtor is a trust, the filing must provide the exact name of the trust as defined on the Declaration of Trust and/or the exact name of the trustee as trustee of the trust and not individually.

Debtor Signature: Debtor signature is not required under Revised Article 9. However, debtor authorization for filing the financing statement is required and is typically provided by a properly executed security agreement that is maintained by the secured party as evidence of debt.

Secured Party: Filings must include the exact name or name of representative of the secured party together with exact mailing address of the secured party.

Collateral Description: General collateral may be described on financing statements using "all assets" or "all personal property". Actual collateral must be described in the security agreement. Fixture filings must still include a legal description of the real property.

Term: Unless terminated or continued, perfection is good for five (5) years in all offices and may be continued by filing a continuation statement.
Exceptions are:

(a) if the debtor is a transmitting utility, the filing is good until terminated; and

(b) a real estate mortgage that is effective as a fixture filings is good until the mortgage is paid.

For specific state information regarding UCC filings and requirements, see LeapLaw's 50 state pages.

Filing

Where to File

All filings are made centrally (except filings where collateral includes fixtures, timber, mineral, oil, gas and any other lien under Sections 310(b) and 310(d) of the UCC) as follows:

• Incorporated or Registered Entity: If debtor is a registered organization such as corporation, limited liability, limited partnership or partnership, the filing is made in the state of organization.
  
  
• Sole Proprietor or Individual: If debtor is an individual or sole proprietorship, filings are made in the principal location of the debtor's business or individual's residence.
  
  
• Non-U.S. Debtor (or jurisdiction without central filing system): Washington, DC.
  
  
• Fixture and Timber Filings: Filings remain at the registry of deeds where the property is located.

Making Filings

Filings can be made online in many states. LeapLaw's UCC Connection tracks states where online filing is available. Filings can also be made using your preferred service company.

For more information regarding specific state filing requirements, see LeapLaw's 50 state pages.

Transition and Safe Harbor
Transition to RA-9 will be complete July 1, 2006. Therefore, a safe harbor rule has been incorporated into RA-9 providing secured parties with a year to file necessary amendments and/or new financing statements that will comply with RA-9. Typical issues will be filing amendments assuring the exact name of the debtor and filing "in lieu of continuation" financing statements in the states of incorporation or organization.

In Lieu of Continuation
If a change in the filing office occurs as a result of a change in principal office or jurisdiction, the secured party files an "In Lieu of Continuation Statement". This statement is essentially a new statement with reference to the old filing information (i.e. the old filing office, dates of filings, and filing numbers as well as its most recent continuation statement) and can be filed any time before the expiration date of the UCC filing.

Continuation Statements
A continuation statement must be filed within the six (6) months before the date of the filing will terminate.

Best Practice Tip: If the filing office fails to reject the filing, the continuation statement will still be ineffective.

Termination
Minus the filing of a continuation statement, a filing will remain on file and be reported on a search for one year following termination. Secured party must record terminations with filing officer or send debtor a copy of the termination statement. Failure to provide a termination statement will result in a $500 fine plus any loss the failure has caused the debtor. Debtor may file a termination statement if compliance is not met and/or if termination filing is bogus.

UCC Searches

UCC financing statements searches are part of the due diligence process of many transactions and are performed in order to discover any prior security interests in any assets of the target company by searching for all financing statements filed reflecting the target company as debtor.

Since complete transition to RA-9 will take until July 1, 2006 or until all prior filings have been terminated, lapsed or continued under RA-9, diligent UCC searches may still require searching all states and counties where the company is qualified to do business and/or has collateral as would have been made under old Article 9. A search according to old standards will be more thorough and provide a chance to terminate obsolete filings.

To be prudent, until the transition is complete, UCC searches may be performed in any jurisdiction:

• where the company has/had property or offices;
• any state in which the company is qualified; and
• any county where property is located.

Preliminary searches may be performed online at many state web sites; and some states also have images available online. A list of state web sites offering online search capability is located at LeapLaw's UCC Connection.

Certified Search; UCC-11

UCC-11 searches are certified by the state filing officer and may be ordered online, directly with the filing officer or through your preferred company.

It is often more time and cost-efficient to contract a service company to conduct such searches, even local searches. As long as the corporate name and jurisdiction provided to a search company are accurate, search companies will retrieve documents for a set price regardless of transportation and waiting times that may occur.