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No Surprises: Minimize Risk with UCC and Corporate Debtor Monitoring

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Posted on by Kacy Flowers

Debtor Monitoring

After filing a UCC Financing Statement, it is important to monitor the public record for changes. Changes in the public record reflect activity that may affect the status of your UCC filing and jeopardize your priority position to collect.

The easiest and most cost-effective way to keep an eye out for changes in the public record is to enroll in a debtor monitoring program. A debtor monitoring program will perform frequent, recurring searches to check for new activity that could represent a credit risk, and then promptly alert you to any findings.

The idea behind debtor monitoring is that the sooner you learn of a potential threat, the sooner you can take action to protect your interest.

The two most common types of debtor monitoring are UCC Monitoring and Corporate Monitoring.

UCC Monitoring will notify you if:

  • A UCC3 Amendment is filed against a UCC naming your debtor. If another creditor files an amendment to a UCC that names your debtor, it could indicate that a change needs to be made to your own UCC filing. For example, if another creditor files a debtor name change amendment, you may want to follow up with your borrower to determine if you need to file a name change as well. 
  • A new UCC1 Financing Statement is filed against your debtor. A new UCC Financing Statement may not represent a competing claim since it was filed after your perfected UCC, but it could be a concern if your borrower is breaking one of the terms of your agreement by entering into another transaction involving the same collateral.

  • A termination is filed against your UCC. In the event of an unauthorized termination, you will likely want to file an information statement with the filing office to make a note in the public record that the termination was filed without proper authority. 
  • A Federal Tax Lien has been filed against your debtor. It is important to learn of a newly filed Federal Tax Lien right away. This is a particular concern for factors since a Federal Tax Lien can prime a perfected UCC for new advances made outside of the 45-day window. And for any lender, a Federal Tax Lien could signal your borrower is experiencing financial distress.

>> Your Top Tax Lien Searching Questions Answered Here! Learn More...

Corporate Monitoring will alert you if your business debtor has:

  • Filed a Name Change Amendment. Corporate Monitoring will alert you if your business debtor has undergone a name change, giving you ample time to follow up with your borrower and prepare and file a UCC3 debtor name change amendment if necessary.

  • Participated in a Merger. When a business debtor is involved in a merger, additional UCC filings are often required to maintain priority. Depending on the nature of the merger, you could be required to file a name change amendment, add an additional debtor, or perhaps even file a brand new UCC in a new state and strict time limits apply in each scenario.
  • Re-domesticated to another state. In order to be effective, a UCC filing against a registered business must be filed in the entity’s home (domestic) state. If your borrower re-domesticates to a new state, you would need to know as soon as possible in order to file a UCC in the new home state to remain perfected in after-acquired collateral.
  • Fallen out of good standing. If your business debtor fails to satisfy a statutory compliance requirement and loses its good standing status, you will be notified and can take steps to mitigate the risk to your organization.

If you are not currently taking advantage of any debtor monitoring programs, you may want consider incorporating UCC and/or Corporate Monitoring into your standard post-closing due diligence routine to help preserve your priority for the life of your loans.

>> Learn more! Watch our FREE on-demand webinar, ABCs of Post-Closing Due Diligence

Through UCC eZFILE®, the CLAS online UCC filing and portfolio management system, users can sign up for our automated Debtor Monitoring program and receive timely notification of any new UCC or Corporate activity that could signal a credit risk and jeopardize their ability to collect.

Contact CLAS today to request a FREE system demo!

Request Demo

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