Secured parties must file their UCC Financing Statements quickly and correctly in order to perfect their security interest and gain a priority position to collect. Even small mistakes in the UCC filing process can prove costly since they open the door for a subsequent secured party to claim priority.
Despite their importance, CLAS has found that there are a host of common misconceptions or “myths” surrounding UCC filings. In this article we strive to debunk Five Common UCC Filing Myths.
- Myth: The Secretary of State’s office will catch any filing mistakes I make in filling out the UCC form.
- Truth: According to the Uniform Commercial Code, the filing officer’s duties are to be ministerial in nature. When they review a UCC document prior to filing, they are checking it against a set of minimum requirements and if the document meets those minimum statutory requirements, the filing office is instructed by the Uniform Commercial Code to accept the document and enter it into the public record. The Secretary of State or equivalent filing office makes no determination as to the accuracy or sufficiently of a UCC document - that responsibility falls to the secured party or the agent preparing the UCC filing on their behalf.
- Myth: For lengthy business debtor names, it is OK to use common abbreviations such as Mfg. and Nat’l when completing a UCC Financing Statement form.
- Truth: When filing a UCC that names a business debtor, it is critical to input the exact legal name. The exact legal name is defined as the name as it appears in the public organic record, another way of saying their organizing paperwork (i.e. Articles of Incorporation or equivalent document), taking into account any amendments or merger documents filed thereafter that affect the business name. Any UCC filing that uses an abbreviation not present in the pubic organic record would fail to properly identify the debtor by Uniform Commercial Code standards.
- Myth: A Continuation extends the term of effectiveness for a UCC record for and additional five years from the date the Continuation Statement is filed.
- Truth: A filed Continuation Statement extends the UCC record’s effectiveness for an additional five years from the date that the Financing Statement would have expired, not from the filing date of the Continuation Statement. It is as if a UCC filing is always allowed to finish out its initial term then the Continuation gets tacked on at the end.
- Myth: When filing a UCC Financing Statement on an individual, the best source for determining the debtor’s legal name is their birth certificate.
- Truth: When the 2010 Amendments to Revised Article 9 of the Uniform Commercial Code went into effect, new guidelines were introduced for how secured parties must identify individual debtors on UCC filings. States could enact one of two options: Alternative A which instructs secured parties to list an individual debtor names exactly as it appears on their driver’s license or state-issued identification card, or the broader Alternative B which provides a variety of ways a filer may list individual debtors, but still references only the driver’s license or state-issued identification card as a source document.
- Myth: For business debtors, I need to file a UCC Financing Statement in every state where the company is qualified to transact business.
- Truth: There is no need to file in every state where a business is qualified. The Uniform Commercial Code contains strict rules for where UCC records are to be filed. For a registered business (e.g. Corporation, Limited Liability Company, etc.) UCCs are to be filed in the state where the entity filed its initial formation documents, that is their home or domicile state. For an unregistered business, such as a General Partnership in many states, a UCC would be filed in the state where they have their chief executive office.
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For informational purposes only; content does not constitute legal advice.