Service Area: UCC Services

3-in-3: Taking a Secured Interest in Canada via the PPSA

Posted on July 17, 2017 by - UCC Financing Statements

3-in-3: Taking a Secured Interest in Canada via the PPSA

Today’s 3-in-3 features UCC Specialist, Diane Toth. Read this post to learn more about the similarities and differences of the UCC and PPSA.

Canada’s Personal Property Security Act was enacted in the early 70’s and modeled after Article 9 of the Uniform Commercial Code.  Just like a UCC filing, a properly perfected PPSA requires a signed security agreement, public registration of the Financing Statement, and search/notification of any previously secured creditors.

A UCC is filed based on where your customer is registered. What determines where a PPSA is registered?

Diane:  Under Article 9 of the UCC Financing Statement, it’s filed in the jurisdiction of where the debtor is registered, or if an individual, in their state of residence.  Under the PPSA, the security interest is registered in the jurisdiction where the chief executive office is located.

Unfortunately, the PPSA does not define chief executive office, which leaves where to file when shipping to multiple provinces open to interpretation. Under the current PPSA, if the chief executive office is in Alberta, but you’re shipping to British Columbia and Ontario, you would want to file in Alberta, British Columbia and Ontario.

The good news is the Ontario PPSA recently enacted an amendment that better defines a debtor location and this change is more in line with Article 9’s debtor location rules.  (Hopefully the remaining provinces will follow suit!)

Another exception is the province of Quebec.  Quebec has chosen not to follow the PPSA and governs its secured transactions under the Quebec Civil Code which requires an agreement called the Deed of Hypothec.

Is establishing priority in equipment different when registering a PPSA vs. filing a UCC?

Diane:  Yes, under Article 9 you have 20 days from the date of delivery of the equipment to file a UCC to maintain priority rights in your equipment. To maintain your rights under the PPSA, you only have 15 days from the date of delivery to file your PPSA. If you file on the 16th day after the equipment is delivered, you will lose your priority on that equipment which also includes the loss of right of repossession.

UCC filings are effective for 5 years (except Wyoming, which is 10 years). Is a PPSA also effective for 5 years?

Diane: No, under PPSA you choose the length of time for your security interest.  You can choose between 1 to 25 years or even infinity.  Of course, the longer the filing is effective, the more expensive the filing fee.  If you do choose to validate your PPSA for longer than 5 years, the best practice would be to conduct periodic searches to review for any changes that may affect your security interest.

If you have questions, don’t hesitate to contact us – we’re here to help!

3 in 3 Using the PMSI UCC to Get Paid

Posted on May 8, 2017 by - UCC Financing Statements

3-in-3: Using the PMSI UCC to Get Paid

Today’s 3-in-3 features UCC Specialist, Aimee Ebersbach. Read this post to learn more about how you can utilize the PMSI UCC to get paid.

My customer has defaulted; I filed a PMSI, what should I do?

Aimee: What we recommend creditors do first is to contact their debtor and try to get the matter resolved amicably. It’s important that the creditor ask questions such as: “Do you have my inventory?”; “Can I come pick it up?”; “Are you still in business?”

It’s important for the creditor to remind the debtor they’ve signed a security agreement and the debtor is technically in breach of contract. The creditor should also remind their debtor that they have filed the UCC which perfected their security interest and has given them a priority in either their inventory or equipment.

What should I do if the amicable route doesn’t work?

Aimee: Although every case is different, there are some major benefits to sending an attorney demand letter. One of them is the low cost. It’s a flat fee and there’s no obligation for the creditor to formally place that debtor with collection at that point.

The creditor can customize the content of the letter, which includes attaching the signed security agreement and UCC filing. Another benefit is that the letter is sent via certified mail. That will alert the creditor as to whether or not the debtor has vacated the premises.

If the demand letter is unsuccessful, we recommend placing the debtor for collection. It’s important to have an expert attorney review your claim as soon as possible so that attorney can provide a recommendation on enforcing the security agreement and the UCC filing. It’s also important to know that legal action may need to be taken to properly repossess any inventory or equipment.

Time is of the essence. It is important that the claim be reviewed by an expert in that industry.

Let’s assume we’ve gone through all those measures and then we find out our debtor sold off our inventory or equipment. Is there still value in obtaining counsel and trying to go after the claim with an attorney?

Aimee: Absolutely. The creditor will have a breach of contract against the debtor via the security agreement. So at the very least, the creditor will be able to file suit against the debtor and any other responsible parties such as a personal guarantor.

Again, getting the claim to an attorney who’s an expert in that field is the best bet.

3-in-3 Takeaways

  • Be proactive. Keep the lines of communication open with the debtor.
  • Act quickly once you realize there’s a problem, so you have the best chance to get your equipment or inventory back.
  • Have an attorney send a demand letter & include copies of the security agreement and UCC.

NCS has many clients who have successfully leveraged their security interest to repossess their inventory or equipment.

Contact NCS if you don’t know where to start.

Fixture UCC Filings for Creditors in Hospitality

Posted on April 24, 2017 by - UCC Financing Statements

Blanket Filings, Consignment Filings and PMSI Filings are commonly used by creditors who supply to the food, beverage and hospitality industries. As a matter of fact, we’ve already covered these filing types, so today we will round out our series with Fixture Filings.

When we discussed PMSI in Equipment filings, I mentioned that there could be instances where your equipment would qualify as a fixture. If your piece of equipment is deemed a fixture, then a Fixture Filing is the UCC for you.

Fixture Filings

In the food, beverage and hospitality industries, fixtures could include ranges, ovens, coolers, sinks, dishwashers, hotel headboards and external signage. Notice the overlap? How can a cooler be a piece of equipment and a fixture? Based on the definition under Article 9, a fixture is anything that is “so related to a particular property.”

What are fixtures? Fixtures are “goods that have become so related to particular real property that an interest in them arises under real property law”. — Article 9-102(41)

What is a fixture filing? A fixture filing is “the filing of a financing statement covering goods that are or are to become fixtures and satisfying Section 9-502(a) and (b). The term includes the filing of a financing statement covering goods of a transmitting utility which are or are to become fixtures.” — Article 9-102(40)

The key is “so related,” which indicates the item isn’t permanent, but is still physically attached to the real property. You will likely notice a theme here: fixtures are secured to the building or premises, but can be removed if necessary (if their removal won’t impact the structural soundness of the building or property).

Take the example of headboards and external signage. Headboards are often affixed to the wall, but could be removed without compromising the physical integrity of the hotel (i.e. a removed support beam would compromise the hotel, but simply changing out a headboard that is secured to the wall won’t make the building tumble to the ground).

Similarly, the signs you see outside the hotel identifying it as Holiday Inn or Marriott are attached to the building, but not permanent (the same could be said for signs identifying restaurants).

If we look closer at the differentiation of a cooler being a piece of equipment versus a fixture, the answer is gray at best. Wait, what? If the equipment is affixed to the floor or walls yet still removable, it could be considered a fixture.

Here’s an Example

For example, a cooler that has been bolted to the wall and secured to the floor, like a walk-in cooler, would likely be a fixture. Whereas, a display cooler that holds soda, (those that you often see in grocery stores at the checkout line), can easily be moved as needed.

Here’s another example from NCS’ Jerry Bailey: “If it’s a restaurant and I put a copier in that business, that business could still run if the copier was removed. They could still run the restaurant, so, in that case, it’s not a fixture. If it’s a restaurant and I put a stove in there and I take the stove out, the restaurant can’t continue to cook food, so if the restaurant can’t continue to cook the food, then the stove is very much a fixture.”

Fixture Filings Can Protect You if Your Customer Tries to Sell His Business

Although a fixture filing is still a UCC filing, it is recorded in the real property records, which then turns the security interest into a mortgage or lien against the actual property where the fixture is or will be located.

This makes fixture filings immensely beneficial for creditors, in the event their customer tries to sell their business, because the filing clouds the title of the property. This encumbrance alerts potential buyers/sellers that you need to be paid before the filing will be removed from the property – essentially, the filing keeps the property from transferring from one party to another, until the debt is satisfied.

When Mechanic’s Liens May be a Better Solution

Now, briefly back to the idea that you could also benefit from securing mechanic’s lien rights. There are situations where the piece of equipment is considered an improvement to the building, therefore eliminating the fixture filing.

As an example, one of our clients furnishes exhaust hoods, exhaust fans, heaters and other various pieces of equipment for commercial kitchen ventilation systems. Independently, a single piece of equipment, such as an exhaust hood, could be classified as a fixture (because it is affixed to the property). However, if this same piece of equipment is deemed an “improvement to the real property,” rights can be secured via the state mechanic’s lien statute.

Mechanic’s lien statute has its own set of gray-area-challenges, but one important difference to keep in mind is that mechanic’s liens are not consensual. Meaning, your customer does not have to sign an agreement permitting you to file a mechanic’s lien, unlike the Security Agreement required for UCC filings. If you supply items that rest on the fine line of “fixture” or “improvement to real property” you may want to consider securing your mechanic’s lien rights.

Of course, one could argue that a new walk-in cooler is an improvement to a real property (i.e. mechanic’s lien) or that a ventilation hood is merely affixed & therefore removable (i.e. a fixture filing), which means that determining whether something is or isn’t an improvement to a building will likely require a legal opinion.

The Important Role of PMSI UCC Filings in the Foodservice

Posted on April 4, 2017 by - UCC Financing Statements

The Important Role of PMSI UCC Filings in the Foodservice, Beverage & Hospitality Industries

Previously we discussed how Blanket Filings and Consignment Filings can reduce risk when supplying to the food, beverage & hospitality industries. Now let’s discuss PMSI in Inventory and PMSI in Equipment filings and their role in securing creditors.

Purchase Money Security Interest (PMSI) Filing: Inventory or Equipment

A Purchase Money Security Interest (PMSI) filing provides the same benefits as the blanket filing with the addition of priority of repossession of specific identifiable goods, primarily inventory or equipment that your company would provide.

The determination of whether your goods are inventory or equipment depends on what your customer is doing with the goods you provide.

If you sell goods to your customer and your customer intends to resell them to other entities, then your goods would be considered inventory. Within the food, beverage & hospitality industries, we don’t often see creditors using inventory filings.

Why? Well, frequently these goods are perishable and you don’t want them back.

PMSI in Inventory: “Securing collateral that is defined as inventory 9-102(48) – “Inventory” means goods, other than farm products, which: (A) are leased by a person as lessor; (B) are held by a person for sale or lease or to be furnished under a contract of service; (C) are furnished by a person under a contract of service; or (D) consist of raw materials, work in process, or materials used or consumed in a business.”

PMSI in Equipment filings are much more common in the food, beverage & hospitality industries.

PMSI in Equipment: “Securing collateral that is defined as equipment 9-102(33) – “Equipment” means goods other than inventory, farm products, or consumer goods. The “equipment” is used in the course of the debtor’s business – it is not stocked.”

Creditors who would benefit from a PMSI in Equipment would supply items like copy machines, beverage dispensing machines, flatware, ice machines, stoves/hoods and walk-in coolers; equipment your debtor would keep, use in their ordinary course of business and not re-sell. These are items that you could potentially repossess because there is a resale value to you.

(Note, if you are supplying equipment, it could be deemed a fixture, which warrants a different type of UCC filing.)

Let’s Look at an Example

As an example, a bankrupt restaurateur has six secured creditors. One of his creditors is secured via a PMSI Filing, 5 creditors are secured via Blanket filings, and the remaining creditors are unsecured.

The creditor secured via a PMSI filing has sold a piece of equipment which has been placed in Chef Charles’ restaurant. The original price of the equipment was $10,000, and over time, Chef Charles has retained possession of the equipment and paid $5,000 towards the balance, leaving a balance of $5,000 due to his creditor.

The bankruptcy trustee is going to liquidate Chef Charles’ $61,000 in assets and begin paying his creditors.

The creditor with the PMSI filing will go in first and repossess their piece of equipment. Then the total assets value is reduced from $61,000 to $56,000. Now, payment priority goes first in time, first in right.

Once the secured creditors have been paid, there is $1,000 remaining, and that $1,000 will be disbursed on a pro-rata basis to all general unsecured creditors.

Because the creditor secured their equipment through a PMSI filing, they took priority over the various Blanket filers.

The food, beverage and hospitality industries are enormous — just drive down the street and you are likely to see a dozen different restaurants in a half mile stretch. Although variety is nice as a consumer, this heavily saturated market is extremely risky for creditors.

Extending credit without security is simply a risk you cannot afford in this market — file UCCs to mitigate your risk and exposure.

Foodservice Industry & the Importance of Blanket UCC Filings

Posted on March 13, 2017 by - UCC Financing Statements

The Important Role of Blanket UCC Filings in the Foodservice, Beverage & Hospitality Industries

The restaurant, beverage and hospitality industries are massive. The National Restaurant Association projected the commercial restaurant services sales would reach $783 billion by the end of 2016, which is about 4% of the U.S. gross domestic product.

With a flooded market, there is variety, but there is also significant risk.

If you are supplying goods, equipment or services to the foodservice, beverage or hospitality industries, you are faced with a unique set of challenges when extending credit. The most common challenge? The high rate of company failure.

“Most restaurants fail quickly, and the seeds of their failure are planted before the restaurant even opens.” — Christine Letchinger, professor at Chicago’s Kendall College.

In The Anatomy of Restaurant Failure: Dead Man Walking, author Christine Letchinger cited studies that estimate 60% of restaurants fail within their first three years.

“Various studies estimate that among the 60% of operations that fail within the first three years, 44% failed the first year, 33% within the second year, and 23% in the third year.”

So how can you, the creditor, reduce your risk in extending credit? UCC filings. We’ve previously discussed how consignment filings can reduce risk to scan-based trading and today we are going to discuss blanket filings.

Blanket (aka Basic) UCC Filing

A Blanket Filing is a security interest in all assets of your customer on a non-priority basis, eliminating potential conflict with your customer’s primary lender. (Think of it as a blanket that lays down over all customer assets.)

The priority or payout in a bankruptcy is determined by the filing date (first in time, first in right). For example, if ABC Co. files the first UCC and XYZ Co. files the second UCC, ABC Co. will be paid first and XYZ Co. will be paid second.

Blanket filings are popular among those supplying to restaurants, as they are most commonly used in situations when your customer “consumes” or otherwise does not stock your goods.

Example | New Restaurant’s Bankruptcy and Creditor Outcomes

In this example, a new restaurateur illustrates how creditors who secured their interests through blanket UCC filings fared differently from unsecured creditors when the business faced Chapter 7 bankruptcy.

Chef Charles is going to start a restaurant. He’s worked in the restaurant industry his entire working life and thinks “OK, I’m pretty good at this. I know how to run a restaurant, and how to make foods that are delicious and attractive, plus I can create an environment where people will want to dine.”

Chef Charles creates his business plan and determines he needs start-up capital, so he goes to the bank with his business plan and a request for $20,000. The bank reviews his plan and decides to lend the $20,000 to Chef Charles, and the bank perfects their security interest.

Chef Charles is ready to start. Various vendors will solicit Chef Charles regarding different materials and services he may need, and each vendor that successfully sells their goods to Chef Charles will need to decide whether they are going to sell on open credit terms, via credit card or cash in advance. If the vendor decides to sell on open terms, the vendor will need to further decide whether they will sell on a secured or unsecured basis.

Chef Charles has selected his vendors. Of his numerous vendors, four of them have taken a security interest and filed a UCC.

  • Secured Creditor 1: $10,000
  • Secured Creditor 2: $10,000
  • Secured Creditor 3: $5,000
  • Secured Creditor 4: $10,000

We’ll assume the remaining vendors have opted to sell on unsecured open terms. Business is underway! At any given time, Chef Charles has $61,000 in assets. Unfortunately, 3 years later Chef Charles becomes a statistic, when his business fails and he files for Chapter 7 bankruptcy protection. What happens to his creditors? It’s simple, Chef Charles’s assets will be liquidated and creditors will be paid by priority. Creditor priority is based on first in time, first in right.

Here are the Basics

The bankruptcy trustee is going to liquidate Chef Charles’ $61,000 in assets and begin paying his creditors.

The bank was the first party to lend and take a secured interest, so they will be the first paid, then the other vendors who filed UCCs will be paid in the order in which they secured their interest.

Total Assets $61,000.00
Bank is paid ($20,000.00)
Secured Creditor 1 is paid ($10,000.00)
Secured Creditor 2 is paid ($10,000.00)
Secured Creditor 3 is paid ($5,000.00)
Secured Creditor 4 is paid ($10,000.00)
Total Available for Unsecured Creditors $6,000.00

Once the secured creditors have been paid, there is $6,000 remaining, and that $6,000 will be disbursed on a pro-rata basis to all general unsecured creditors.

In this case, Chef Charles has 100 unsecured creditors that were each owed $1,000. Each of these creditors will receive $60 (based on the pro-rata disbursement) or 6 cents on the dollar.

Customer Default & Your UCC Filing

If your customer has defaulted on payment(s) and you have filed a Blanket UCC, you could place the outstanding debt with a collection agency or file suit against your debtor.

  • If your customer filed Chapter 7, File your secured proof of claim.
  • If your customer filed Chapter 11, File a secured proof of claim and monitor for distribution.

With 60% of restaurants failing in the first three years, and little surviving beyond five years, are you willing to take the risk of losing money?

If you are not securing your rights through UCC filings, you are taking an unnecessary risk and allowing your company to be competitively disadvantaged.

Alternative A in Action and Your UCC Filings

Posted on March 6, 2017 by - UCC Financing Statements

Alternative A in Action: The Debtor’s Name as it Appears on the Unexpired Driver’s License — Even if it’s Incorrect

In a recent court decision, one creditor’s security interest was eliminated because they spelled the individual debtor’s name correctly.

Yes, I said “correctly.” Because, in this case, “correctly” and “as the name appears on the driver’s license in compliance with § 9-503(a)” resulted in two different spellings of the debtor’s name.

Case Background

In 2014 and 2015, MainSource Bank (MainSource) entered into two different loan agreements with the debtor (specific to this case is debtor Ronald Nay). With each loan agreement, there was a signed security agreement and MainSource filed the appropriate UCC Financing Statements toperfect their security interest.

At the end of 2015, LEAF Capital Funding, LLC (LEAF), executed an agreement with one of the debtors, Ronald Nay, for the purchase of two pieces of equipment. With the finance agreement, LEAF also obtained a signed security agreement and subsequently filed a UCC Financing Statement to perfect their security interest.

In May 2016, the Nays filed for bankruptcy protection. As a presumed secured creditor, LEAF filed their proof of claim in September 2016, and soon after, MainSource filed a complaint arguing that LEAF did not have a perfected security interest.

The court agreed with MainSource, leaving LEAF with an unperfected security interest.

The Difference Between Two Financing Statements

MainSource’s UCC identifies the debtor as “Ronald Markt Nay” (emphasis added) which is not how Ronald spells his middle name, it is however, the way Ronald’s name appears on his driver’s license.

LEAF’s UCC identifies the debtor as “Ronald Mark Nay” (emphasis added) which is the correct spelling of Ronald’s middle name, but not the spelling as it appears on his driver’s license.

Why is LEAF’s UCC unperfected? After all, LEAF correctly spelled Ronald Nay’s middle name!

Because, to be compliant with Alternative A under § 9-503(a), the debtor’s name must appear on the UCC Financing Statement exactly as it appears on the unexpired driver’s license.

The Amendments & The Alternatives

July 1, 2013. A day that will live in infamy! That is, if you are familiar with Article 9 of the Uniform Commercial Code, as it is the date the 2010 Amendments went into effect.

One issue addressed in the 2010 Amendments was how to determine the debtor’s name as it should appear on the UCC Financing Statement.

In compliance with § 9-503(a), when the debtor is a registered organization, creditors should rely on the information found on the public organic record.

If the debtor is an individual, creditors must first look to the state’s legislation.  With the 2010 Amendments, each state had to decide whether they would implement “Alternative A” or “Alternative B.”

  • Alternative A: if the debtor holds an unexpired driver’s license, the Financing Statement must list the debtor’s name as it appears on the unexpired driver’s license. (If the debtor does not have a driver’s license, the Financing Statement should list the “individual name” of the debtor or the debtor’s surname and first personal name.)
  • Alternative B: the debtor’s driver’s license name, the debtor’s actual name or the debtor’s surname and first personal name may be used on the Financing Statement.

Most states opted to enact Alternative A, including Indiana — the state where Nay is located and the Financing Statements are filed.

Seriously Misleading or Minor Error

In its decision, the court admitted the spelling error on LEAF’s UCC was minor, and per Indiana Code § 26-1-9.1-506(a) “A financing statement substantially satisfying the requirements…is effective, even if it has minor errors or omissions, unless the errors or omissions make the financing statement seriously misleading.”

But, per code § 26-1-9.1-506(b), “Except as otherwise provided in subsection (c), a financing statement that fails sufficiently to provide the name of the debtor in accordance with IC 26-1-9.1-503(a) is seriously misleading.” So, we must circle back to IC 26-1-9.1-503(a), which is Alternative A, and is, in fact, the technicality that invalidated LEAF’s security interest.

“§ 26-1-9.1-503(a)(4) … if the debtor is an individual to whom this state has issued a driver’s license or an identification card for nondrivers under IC 9-24-16 that has not expired, only if the financing statement provides the name of the individual which is indicated on the driver’s license or identification card.”

The Court

As you may know, the UCC is considered seriously misleading, thus invalid, if a search of the debtor’s name does not reveal the UCC. The court held that LEAF’s UCC would not have been uncovered via a search using standard search logic.

“In this case, considering the plain language of the statute, given its ordinary meaning, and reading section 503 together with section 506, it seems clear that the “only” correct name of the Debtor under section 503 is the name on his Indiana driver’s license, Ronald Markt Nay. Section 506 provides relief to LEAF only in as much as a search of the debtor’s “correct” name (as established by section 503), using standardized search logic, would reveal its financing statement. It does not.”

Parting Thoughts

At face value, this opinion seems quite extreme. But it is a clear reminder that compliance is king. Use caution when identifying your customer on the UCC filing, whether it is an organization or an individual. If it’s an individual, carefully list their name exactly as it appears on their unexpired driver’s license.

If you have questions regarding this recent court decision or UCC filings, please contact NCS today!

Consignment UCC Filings in the Foodservice Industry

Posted on February 20, 2017 by - UCC Financing Statements

Consignment UCC Filings and Open Credit in the Foodservice, Beverage & Hospitality Industries

Statistic Brain reports that only 47% of retail entities are still in business after their 4th year. And grocery stores sit in the #3 spot of businesses with the worst rate of success after a 5th year. This high rate of failure is driven by many factors including poor business planning, poor credit granting practices, inadequate inventory and unfamiliarity with suppliers.

Because the risk of failure is so prevalent in the food, beverage and hospitality industries, creditors must actively and aggressively implement UCC filings for security. Creditors often include security language within their credit applications and establish standard business practices by always obtaining a signed Security Agreement, because UCCs work.

UCCs are a basic risk mitigation tool; they are a low-cost solution, requiring nothing more than a signature from the customer. Let’s take a look at how consignment filings can reduce your risk in scan-based trading.

Consignment Filings — Scan-Based Trading

There are two type of consignment:

  • “Sale or Return” where goods are delivered to the consignee primarily for retail purposes.  In this type of consignment, title passes to the consignee upon delivery, but the consignee remains contractually obligated to return any unused goods.
  • “True Consignment” where the goods are delivered to be primarily used by the consignee, but consignor retains title to the goods.  Consignee may either be pulling goods from stock on an as needed basis, or might be testing out goods on a trial basis to determine the necessity of the goods.

How Does a True Consignment Work?

The consignor/owner retains title to the delivered goods, while the consignee/recipient holds and attempts to sell the goods. If/When those goods are sold, the owner’s security attaches to the proceeds of the sale. If the consignee is unable to sell the goods, they can simply return the goods to the owner.

This falls right in to scan-based trading. Grocery stores are a great example of scan-based trading.  A creditor provides a grocery store with an inventory of goods. Until those goods are scanned at the counter, the title to those goods remains with the creditor. Once the goods have been scanned/sold, the creditor records the sale and the sold goods leave the inventory.

But, to maintain title to those goods, you must perfect a security interest via a UCC filing. NCS’ Jerry Bailey comments on how Article 9 changed consignment sales.

“Article 9 changed consignments and it basically said, ‘look, that stuff belongs to you, you and your debtor both know that, but nobody else does because there’s no public registration, and that’s not right.’ They call these secret liens because the goods belong to you, but nobody else knows that.

Potential lenders should be able to do a search and see what’s there and who it belongs to. So, they said from now on if you’re selling under consignment, there should be a public registration.

There had been instances where banks came in to a business, saw all the inventory and decided they would factor this inventory into their risk analysis and lend based on the inclusion of that inventory. Unfortunately, they didn’t realize that of the $1 million worth of inventory they looked at, $300,000 of it was consigned goods and belonged to creditors, so it shouldn’t have been factored into the lending.”

Keep in mind, consignment filings may not be the best fit for your business. Creditors supplying to food, beverage and hospitality industries also use Blanket Filings, PMSI in Inventory or Equipment Filings and even Fixture Filings. We’ll discuss the applicability of these other filing types in upcoming blog posts.

Have questions? NCS can help – contact us today!

How to Prepare for Your UCC Filing in Florida

Posted on November 1, 2016 by - UCC Financing Statements

What You Should Know Before Filing Your Own UCC Financing Statements in Florida

You have taken the meticulous steps to properly perfect your security interest. You may have spent countless frustrating hours going back and forth with your legal department to agree on the security language. You have created a collateral description that others have only dreamed about. You have overcome obstacles with your sales team and even with your customers. But now you are here — you have conquered the proverbial mountain.

You’ve done it all & you are ready to secure your right to payment!

And just like that, you are tumbling back down the mountain, because someone missed a keystroke when indexing your filing… poof… your security interest is gone.

OK, perhaps I’m a smidge dramatic… but, the devastation that accompanies an invalid security interest is real.

“I can do it!” Just because you can do it yourself, doesn’t mean you should.

When we discuss the UCC filing process with creditors, we frequently hear “Eh, it’s easy, we just do it ourselves.” Recording a Financing Statement may appear to be a simple task, but appearances can be deceiving.

We’ve said it before & I’ll say it again, UCC filings are more than a form fill document! A properly perfected security interest requires a detailed and accurate security agreement and a carefully completed, reviewed and indexed Financing Statement.

There are 50 states and over 3000 counties in the United States, which means there are hundreds of different processes for recording Financing Statements and fixture filings. Our UCC experts are familiar with all recording offices & processes — after all, they are experts. In some states, the Secretary of State’s office is responsible for the recording of the UCC, while in others the state may hire a third party to process the filings.

Recently, our NCS experts conducted an audit of UCC filings filed by a state-hired third party in sunny Florida. The results were unfortunate.

What Our Experts Were Looking For – UCC Filing Errors

The state of Florida uses a private company to manage their UCC filings. Unfortunately, this third party Florida has hired does not utilize electronic data entry.

Most Secretary of State offices operate an online system and although each system is different, they are online nonetheless. However, Florida didn’t get the memo. No electronic data entry means that every filing has to be faxed and/or physically mailed to this third party and the staff of this third party will manually index the info into their system.

It should come as no surprise, but this third party makes mistakes and they don’t subsequently review their own data entry, so the errors can go unnoticed quite easily.

As you know, even simple errors in UCC Financing Statements can quickly invalidate a security interest. (Remember the ‘falling down the mountain’ analogy above?) Companies operate on margins of error, and those margins are typically low, so how does this third party stack up?

Our UCC experts tracked this third party’s errors in July & August, here are the results:

  • July: 13% error rate
  • August: 7.5% error rate

In the month of July, out of 477 filings, 62 filings had errors, which is a 13% error rate. These aren’t minor errors. These are errors in the entity’s legal name and address — errors that would deem the filing seriously misleading.

Fortunately for our clients, part of our internal process includes reviewing every filing once it has been recorded and indexed. In the event we discover errors when we review the filings, we contact this third party and request it be corrected. The third party may be annoyed when we point out their mistakes, but we are doing our job to ensure our clients’ UCC Financing Statements are indexed correctly.

NCS Credit: Your Partner for Easy and Secure UCC Filing

Yes, recording a filing may seem simple, but not everything is as it seems. If you choose to file your own UCC Financing Statements, you should always review the filing once it has been recorded and indexed. Don’t ever assume that the Secretary of State, or in this case a company hired by the state, has indexed it correctly.

Have a review process in place, or better yet, rely on our experts to handle your UCC filings for you!