When performing a UCC search as part of a due diligence investigation, it is imperative to search for liens under the right party names. Conducting searches under the incorrect names, excluding important parties from the search effort or failing to conduct a sufficiently broad search can produce an incomplete result that translates into increased risk for your organization or your client.
Determining the Legal Name of Debtors
The Uniform Commercial Code (The Code) has strict guidelines for how secured parties must name debtors on UCC Financing Statements, and those guidelines influence how to search for names in the public record.
The Code states that a UCC Financing Statement must list debtor’s correct legal name and goes on to explain exactly what that means: for a registered business debtor, the legal name is defined as the name as it is shown on 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 document filed thereafter which affects the business name. If a recent name change filing or merger has occurred, it is a good idea to search both the old and new names to reveal all existing UCCs that may bind the debtor and encumber the collateral.
For individual debtors, there is some nuance and variation within The Code but, in general, best practice dictates looking first to an individual’s unexpired driver’s license (or state issued Identification Card if the individual holds no driver’s license) to determine their legal name. If an individual has a recent marriage or divorce resulting in a name change, a comprehensive search effort would include a search of both the former and the current name.
Since these are the guidelines for how secured parties must file in order to perfect a security interest, it follows that these are the names that searchers ought to search for to uncover any UCCs naming their target. Further, you will want to conduct a UCC search on each business and individual that would ultimately be a party to the loan or business transaction that prompted the search.
Federal and State Tax Lien Considerations
Many states maintain Tax Liens alongside their UCCs. In these jurisdictions, a search of the state filing office’s records will include both UCCs and tax liens that appear on the index. While secured parties must adhere to stringent rules when naming debtors on a UCC filing, government agencies, including the IRS, are not held to the same strict standard when filing tax liens.
In many cases, tax liens maintain priority even if the lien lists a variation of the taxpayer's legal name. Consequently, it is important to be sure your search effort will return any tax liens filed under variations of your target name(s). This can be accomplished in one of two ways: 1. Request an official UCC search under every known name variation or 2. Perform a non-official UCC search using an online search system that utilizes broad-based name searching to uncover filing under similar names.
Knowing what party names to search is the first step in securing high-quality, reliable UCC search results that you can trust. For further questions about how to perform UCC searches to achieve the best results, or to place a new request for a UCC search, contact a CLAS Service Representative at 800.952.5696 or by email at email@example.com. Or, visit our simple online ordering page here!