States have the right to create and enforce laws to govern specific areas that fall outside of federal law. But a large number of legal issues revolve around matters that go beyond a state’s borders. Sales, acquisitions and business loans are three relevant examples. The Uniform Commercial Code, or UCC, was enacted in 1952 to address interstate commercial laws; it’s essentially a lengthy list of laws that are designed to align the law of sales and commercial transactions across the U.S. Lenders should be familiar with a UCC-1 filing. Most states have adopted the UCC in some way. Here’s what you need to know about this aspect of the Uniform Commercial Code.
What is a UCC-1 Filing?
A UCC-1 filing, also called a UCC filing, refers to the UCC-1 Financing Statement. This statement is a form filed by a creditor, giving notice that the lender has an interest in certain of the personal property of the borrower. Similar to a mortgage or deed of trust encumbers real property, the UCC-1 filing indicates that the lender has a lien on the business’s inventory, fixtures, equipment or furnishings, to name a few. The encumbered property serves as collateral until the debt is paid off. If the loan goes into default, and is not resolved, the lender has the option to conduct a public or private sale in order to recoup some of the losses.
How is a UCC-1 Financial Statement Filed?
In most states, lenders file UCC-filings in the office of the secretary of state of the business’s home state and any other state where the personal property is physically located. The filing may be a lien against specific assets - a restaurant’s kitchen equipment and dining furniture, for example - or the lender may file a blanket lien against all assets associated with the business. In either case, these are the assets that are being used by the borrower to secure the loan.
The document itself doesn’t actually need to contain much information. It must include the lender’s name and address, the borrower’s name and address, and an indication of the collateral. This doesn’t necessarily need to be specific, as long as it “reasonably identifies what’s described”. (The description of that restaurant’s oven, for example, might include the manufacturer; but it would not need to include the model and serial number.)
Lenders can generally file on anything related to the business; the business owner’s personal property may be exempt from inclusion. If a lender is planning to act on a UCCUCC-1 filing, it’s a good idea to consult with a UCC foreclosure specialist to ensure that the default process is commercially reasonable.
How Long is a UCC-1 Filing Valid?
UCC-1 filings do have a shelf life. Once filed, a UCC-1 Financial Statement is typically active for five years. It’s common, of course, for the terms of a business loan to extend past that, so lenders need to remember to renew the UCC-1 filing at the first five year mark, and every five years thereafter. The UCC-1 filing can be amended to update any secured assets.
At Total Lender Solutions, we advocate for lenders looking to maximize recoveries on defaulted loans. For over 15 years, our team of highly experienced real estate professionals and legal experts has transformed complicated processes into clear resolutions for institutional and private lenders. We work as a vigorous extension of your team to provide comprehensive solutions and seamless communication, from pre-foreclosure and notice of default to the final sale phase. Our dedication and persistence when it comes to the foreclosure process ensures that our clients feel confident in reaching a successful outcome. Contact us today.