Make Sure to File Your UCC in the Correct State
The UCC filing process may not seem as convoluted as the mechanic’s lien process but there is a tradeoff for the apparent simplicity of UCC filings: strict adherence.
See, mechanic’s liens are creatures of statute, and although there are state specific guidelines, courts appear to be fairly flexible with claimants during litigation.
As an example, if a mechanic’s lien claimant files their mechanic’s lien and misspells the owner’s name. The lien may not face automatic invalidation, because courts often construe statute liberally and spelling errors are a minor infraction (please know this is a generalization & is not a representation of all judges in all courts across the country).
Alternatively, incorrectly identifying your customer on a UCC Financing Statement can be catastrophic. If you fail to identify your debtor with their name exactly as it appears in the public organic record, your filing can be deemed seriously misleading and your security interest is null & void. (Don’t believe me? Check out this recent post!)
Aside from correctly identifying your customer in your UCC Financing Statement, it is vital that you file the UCC in the correct jurisdiction. This warning is reinforced by an article we shared earlier this week, How to Protect and Perfect Your Security Interest by Filing in the Correct State.
“While seemingly a straightforward requirement, one of the frequently overlooked issues in filing the financing statement is choosing the right state office in which to file. What if the buyer in the used equipment situation above is a company registered in Pennsylvania, but has its principle corporate office in Delaware? Further, what if the buyer arranged to buy the equipment through one of its smaller Ohio offices for use only in projects in West Virginia? In which state should you file? Do you have to file in multiple states?”
The ‘dilemma’ of filing in the correct jurisdiction is/was common, because many companies work across state lines (After all, that’s part of the reason for Article 9’s existence!). Wait, “is/was” — yes, the dilemma was much more common prior to the implementation of the 2001 amendments to Article 9. With the amendments, a clear guideline was established: file the UCC in the state where your debtor is registered.
“For debtors that are registered entities, their location is simply the state in which the debtor is incorporated. In the above example, because the buyer is registered in Pennsylvania, the only financing statement necessary would be filed with the Pennsylvania Secretary of State. The creditor is saved from the long hassle of untangling and estimating where collateral may be deemed to be ‘located.’”
Always review the public organic record for your customer — you will then be able to properly identify their name AND the jurisdiction!
Take a look at this week’s 3-in-3! Cindy Bordelon, Manager of our UCC Services Group, answers three hot questions about how to determine which UCC filing is appropriate for you.
Pennies from heaven? Maybe not, but this week’s infographic does feature money! If you intend to secure your rights to file a mechanic’s lien, make sure the preliminary notice contains all of the required information. In some states, the contract and/or claim amount are required. Learn more when you view Infographic: Preliminary Notices that Require a Dollar Amount to Appear on the Notice.
Upcoming Educational Opportunities
- August 30th @ 1:00 pm: Secured Transactions in the U.S. and Canada. Attend this webinar to learn more about the differences and similarities between secured transactions in the United States and Canada and let it assist you with making a more informed credit decision.
- September 13th @ 1:00 pm: Unauthorized UCC Filings and Terminations. Attend this webinar to learn more about what you can do if a UCC you filed is wrongly terminated or if a fraudulent UCC is filed against you.
- September 20th @ 1:00 pm: UCC Filing in the Foodservice, Hospitality, and Beverage Industries. Attend this webinar to learn more about the how the UCC can assist you with some of the unique challenges you face as a creditor.
- September 27th @ 1:00 pm: Understanding Lien Waivers. Attend this webinar to learn more about the fundamentals of lien waivers and the important role they play in project payment.