There are many options available for those who need a UCC search. It is important to have a good understanding of the various types of UCC searches you can choose from so you can make an informed decision about which option best meets the needs of your organization. In this post, we discuss the various UCC search options and touch on some pros and cons associated with each.
What is an Official UCC Search?
An official UCC search, sometimes referred to as a certified UCC search, is one that comes directly from a state filing office and uses the state’s internal UCC index as the data source. The search effort generates a listing of findings and then a state seal and/or filing officer signature is applied to certify the results are accurate and complete.
Benefits of an Official UCC Search
An official UCC search is an attractive option to many searchers because the search result is created using the state’s Standard Search Logic (SSL) - the published rules for how a state determines what constitutes a debtor name match for a UCC search. Typically based on the Model Administrative Rules developed by the International Association of Commercial Administrators, a state’s SSL is an essential test for the sufficiency of a debtor name. And one that the courts apply when determining the relative priority of claims.
An official UCC search employs narrow (or even “exact name”) search logic and will report only UCC filings that have named the debtor according to the Uniform Commercial Code’s strict standards; the search will omit filings that contain debtor name variations or errors that would likely cause a court to regard the filing as seriously misleading.
Name Variation Concerns with an Official UCC Search
That narrow search logic, however, can cause problems in states where tax lien records are maintained on the same index as UCCs. The trouble is that tax liens are not governed by the Uniform Commercial Code and so the IRS and other government agencies are not held to the same naming standards as a Secured Party filing a UCC Financing Statement. An active, enforceable tax lien may be filed under a variation of the taxpayer’s name and would not show up on an official search using narrow search logic.
It is critical to uncover any tax liens of record during a due diligence investigation as several key court decisions have shown that a tax lien can claim priority over a perfected security interest even if filed under a variation of the taxpayer’s legal name.
Non-Official UCC Search Options Combat Narrow Search Logic
To combat the narrow search logic of an official search, some searchers opt to obtain a non-official or “plain” UCC search instead. The source for a non-official UCC search could be either a search feature on a state website or a proprietary UCC and lien search database. These systems utilize flexible search logic to produce a broader, more inclusive result than an official search. They incorporate features such as truncated or fuzzy word searching and wildcard characters to help searchers uncover UCC and lien records filed under variations of their target name.
While non-official UCC searches may solve the problem of narrow search logic, they are not without potential issues of their own. Here are a few things to consider before deciding to rely on a non-official UCC search.
Index Date Considerations for Non-Official Searches
First, the index date (aka through date) of a non-official UCC search is not as current as the date for an official search – particularly for searches performed on a proprietary database where the service provider has to wait for updated UCC and lien information from their data source. While some states provide updated data daily, others only provide new record information weekly, or even monthly and index dates can take a hit as a consequence.
Be Aware of Data Source for Proprietary Search Systems
Another factor to take into account is the source of the data. With an official search or even a plain search done on a state’s website, the source of the data is evident – it comes from the state. With a private search system the source is not always clear; the lien data could have been purchased directly from the state, or it could have come from a third party source. Third party data is less reliable than state-direct data since it can contain errors or incomplete record information that would affect your final results. That said, a search using third-party data is still a valuable tool that can provide instant preliminary information regarding a target’s existing financial obligations. The key is to be aware of the source of the data you are searching. If a search system is using third party data, you may want to order an official UCC search to follow to confirm the findings of your preliminary search.
Lien Type Availability on State Search Systems
Lastly, it is important to be aware that in states where the filing office maintains tax lien and/or judgment lien records in addition to UCCs, those additional lien types may or may not be available through their online search feature. Some states make only their UCC records searchable online, and that can leave searchers with a gap in their due diligence investigation. States do not always clearly publish what lien types are included in their online searches, so be sure to conduct thorough research up front, or work with a service provider that can help you identify what specific lien types are included. If UCCs only are available online, a service provider can recommend alternative search methods or perform supplemental lien searches round out your search effort.
So, which UCC search option is the right choice for you? You best search option will likely depend on number of factors such as the nature of your underlying transaction, the state you are searching and possibly the recommendation of your legal counsel or risk management department. We hope this post has helped you know your options and understand a little more about the benefits and drawbacks of each.
For further help in determining the best UCC search option for your specific business needs, please contact CLAS at 800.952.5696 or by email at firstname.lastname@example.org. Or, simply click on Contact CLAS below.