Search Results for: collateral description

Properly Perfected UCC and Repossession

Posted on December 18, 2017 by - UCC Financing Statements

Can a Properly Perfected UCC Really Give Me the Right to Repossess?

Yes, a properly perfected security interest and proof of debtor default may afford you the right to repossess the collateral. Today’s post reviews a recent case that demonstrates the power of a properly perfected UCC.

In CNH INDUSTRIAL CAPITAL, AMERICA, LLC v. T & P FARMS, LLC, Dist. Court, ND Mississippi 2017, the court granted the Secured Party the right to repossess its equipment because it had 1.) proven the debtor defaulted on the contract and 2.) properly perfected a security interest through UCC Financing Statements.

Background: The Contract, The UCC-1s & The Replevin

In 2015, the debtor, T & P Farms, LLC (T & P) purchased over $1M in farming equipment from Medlin Equipment Company of Mississippi County (Medlin).

According to the court opinion, there were 4 pieces of equipment sold, and each sale was “…evidenced by a Retail Installment Sale Contract and Security Agreement.” (3 of the 4 sales were addressed in the replevin action.)

Included in the contract, aside from the security language and terms of the sale, was a clause regarding debtor default: “the seller has the right to ‘take possession of all Collateral, without notice or hearing…’” and Medlin assigned its interest in the equipment to CNH Industrial Capital America, LLC (CNH). Subsequently, a PMSI filing was properly perfected, by CNH, for each sale/contract.

By the end of 2016, the debtor had stopped making the agreed upon monthly payments and in May 2017, CNH filed a replevin action.

What is Replevin Action?

Wex Legal Dictionary defines replevin as the action used by creditors to repossess collateral from debtors in default. “A writ authorizing the retaking of property by its rightful owner (i.e., the remedy sought by replevin actions).”

The rules of replevin may vary by jurisdiction and this case looks to Mississippi statute (Section 11-37-101 of the Mississippi Code). According to the court opinion, a replevin action requires a declaration under oath to include:

(a) A description of any personal property;

(b) The value thereof, giving the value of each separate article and the value of the total of all articles;

(c) The plaintiff is entitled to the immediate possession thereof, setting forth all facts and circumstances upon which the plaintiff relies for his claim, and exhibiting all contracts and documents evidencing his claim;

(d) That the property is in the possession of the defendant; and

(e) That the defendant wrongfully took and detains or wrongfully detains the same

The Secured Party Prevailed

When a replevin action is filed, the party filing the action needs to prove their right to repossess the collateral. In this case, the Secured Party filed the action, then the Secured Party proved its properly perfected security interest as well as the default of its debtor.

“A plaintiff in a replevin action establishes the right to immediate possession by demonstrating a default on a purchase contract and a perfected security interest in the collateral.”

The debtor is afforded an opportunity to defend against the repossession. The debtor asked the court to consider equitable defense (a defense based on fairness, not law), based on the debtor’s need for the equipment to maintain his business and support his family.  The debtor further added he should not have to pay for the equipment, because the equipment was faulty.  Unfortunately, the debtor’s defense wasn’t persuasive enough.

“While a rule of equity may play some role in this determination, such as where a party claims an equitable lien in the subject of the action, T & P has not cited, and this Court has not found, any authority which supports the proposition that a possessory interest in collateral may be equitably created by either the condition of collateral unrelated to the existence of a default or the need for continued possession.”

CNH properly perfected its security interest and successfully established the debtor’s default, therefore, the court granted CNH the right to repossess the equipment.

UCC for the win!

Can Supporting Documentation Make or Break Your Claim?

Posted on November 10, 2015 by - Credit Risk Management

Can Supporting Documentation Make or Break Your Claim? Short Answer: Yes!

The words rumbled like daunting thunder from the mouth of a tall, lanky and otherwise nondescript bank branch manager. Although he was referring to fraudulent charges on an account, the same adage applies to those who secure credit through UCCs, mechanic’s liens or pursue collections.

I can’t say it with quite the same Armageddon-like-bellow, but I’ll strain to be tip-toes-tall and use the lowest voice I can muster, to repeat “supporting documents can make or break a claim”. Because it’s worth repeating, if for nothing more than a bit of a giggle while I try not to lose my balance.

Which documents should be included?

Regardless of whether you are pursuing a UCC, mechanic’s lien or collection, these are documents you should always have handy:

  • A copy of the Contract or Agreement (including Security Agreement)
  • A copy of the Purchase Order(s)

Short list huh? Well, hang tight, we’re not done. Let’s delve a bit deeper, and uncover the important documentation based on service type.

Filing a Mechanic’s Lien?

If you are securing rights through the mechanic’s lien process, the list of necessary documentation can fluctuate – meaning, you tend to need more supporting documentation and information for a mechanic’s lien than you would for a preliminary notice. In an ideal credit-management-world, you would want to have ALL of this documentation (remember, ideal, not required):

  • Proof(s) of Delivery
  • Itemized Statement
  • Invoices
  • Payment Bond
  • Notice of Commencement
  • Notice of Completion
  • Joint Check Agreement
  • Personal Guarantee
  • Lien Waivers

Generally, when serving a preliminary notice, you would want to include the information that will ensure the proper parties are served with a copy of the notice. This would include knowing who is in the contractual chain (owner, GC, debtor, surety, lender etc.) and can often be found on job information sheets, contracts and Notices of Commencement.

Once you are at the point where you are unpaid and disputes arise forcing you to pursue a mechanic’s lien or even collections, that’s when you will want to refer to open invoices, statement of account, joint check agreements, personal guarantees etc.  Which leads to a great segue...

Pursuing Collections?

We have covered this before, so I won’t rehash it too much. The best advice is to provide as much information as you can. When it comes to pursuing collections or suit, it’s almost always better to have more documentation than not enough documentation (kind of like cake, more cake is better than less cake).  Aside from the “usual suspects” spelled out above, be sure to include copies of correspondence, copies of returned/NSF checks and copies of credit reports.

Filing a UCC?

If you are filing a UCC, it’s a bit less about the backup documentation, and more about ensuring all necessary information is incorporated into your Security Agreement. In the event you are pursuing collections and intend to use your UCC filing as leverage, you will want to ensure you provide the collections agency with a recorded copy of the UCC filing, results from a recent UCC search, a description of the collateral and the amount you are owed.

Supporting Documentation

Maintaining documentation is important – not only for proceeding with secured transactions, but simply as a good business practice.

Leverage Your UCC Filing in the Collection Process

Posted on July 27, 2015 by - UCC Financing Statements

Leverage Your UCC Filing in the Collection Process

The collections process is not a “desired” process. By desired, I mean, no one actually wants to go through it – creditors and debtors alike. But, if you have a UCC filing and your customer has defaulted, you may want to pursue the collection process.

If remedies like demand letters & repossession of goods fail, you may need to enlist the assistance of a collection agency. While I am biased, I would strongly recommend seeking assistance from an agency that also specializes in UCC filings (*fake cough* NCS…).

I mean really – would you go to your cardiologist and ask him to look at the muffler on your car? Of course not!

Leveraging a UCC filing in the collection process is significantly more effective than attempting to collect without any leverage. This is the reason crazy things like blackmail are effective – you have something that another party wants.

To be clear, I do not condone blackmail – unless it’s in a movie or TV show as a great plot twist – but I do support LEGAL ways of securing your receivables.

What Information Should I Send to a Collections Agency?

We have previously discussed the importance of providing your collection agency and/or collector with sufficient information on the collection. (If you need a refresher, you can check out this post.)

You should send the usual suspects: invoices, statement of account, correspondence, but there are also a few UCC specific items you should include.

  • A copy of the signed Security Agreement
  • A recorded copy of the UCC filing
  • A current UCC search: This may indicate whether or not there are other secured parties and determines priority of your filing
  • A description of the item(s) sold aka the collateral: Is the collateral easily removable? Example: is it a 10 ton crane or a pallet of 2 oz widgets
  • The claim amount (how much you are owed by the debtor)
  • The current fiscal status of your debtor: Is their corporate standing with the Secretary of State current, are they in default on other debts, have they simply gone out of business or filed for bankruptcy protection etc.

It’s All about the Leverage

Your UCC filing is your leverage – providing you a security interest in the event of default – don’t misuse your leverage… use it right or lose it!

If you have questions about the UCC filing and collection process, please don’t hesitate to contact us!

Protect Your Consignment Sales

Posted on January 26, 2015 by - UCC Financing Statements

Protect Your Consignment Sales with UCC Filings

If you allow customers to have possession of goods under a “consignment” agreement prior to the actual sale, you are at risk of losing your rights in the goods. To protect your interest, you must have perfected a security interest in those goods under Article 9 of the Uniform Commercial Code (“UCC”) prior to delivery.

What is a consignment?

A consignment is when the owner (the consignor) retains title to goods delivered to the consignee. The consignee will then hold the goods for sale or use. When the goods are sold, the consignor’s rights attach to the proceeds. If the consignee is not able to sell the goods they can be returned to the consignor without any obligation. The advantage of a consignment sale is that it minimizes the risk of non-payment and can be an option when doing business with a poor credit risk.

Does consignment carry risk?

There is a credit risk to be managed in a consignment sale. If the consignor does not take the necessary steps to protect ownership of its goods, the consignor can lose interest in the goods and proceeds.

How can the consignor protect the consigned goods?

Consignors can perfect their security interest by complying with Article 9 of the Uniform Commercial Code.

How to comply with the Uniform Commercial Code?

The consignor’s goods on consignment, or the proceeds from the sale of those goods, may become the subject of a competing creditors claim in the event of bankruptcy or default. The consignor must comply with the Uniform Commercial Code (UCC) for perfecting a security interest in the goods. A perfected consignment interest will afford the consignor priority in their consigned goods over a judicial lien creditor, a bankruptcy trustee and other secured creditors.

Steps to secure the consigned goods

  1. Possess a Consignment Agreement signed by both the consignor and consignee stating  the terms and conditions of the consignment, grant a security interest and describe the goods being consigned. The description of the goods must make them easily identifiable. Generic descriptions such as “all goods” are not acceptable. Then, before delivery…
  2. Make public the “existence” of the Consignment Agreement by filing a UCC Financing Statement [UCC-1] in the consignee’s state of organization.
  3. Conduct a UCC search and send authenticated notification to all previously secured creditors. The notification advises that the consignor has or expects to acquire a purchase money security interest in the described goods of the consignee.

When all of the perfection steps have been completed the consigned goods are protected against competing claims. Remember that any consigned goods delivered prior to the perfection steps are not secure from prior secured parties.

Have you successfully perfected your consignment interest?

Unless you are familiar, comfortable and confident with the process, assistance is recommended.