Beyond the Basics: Comprehensive UCC Searching for Lenders

Annie: Hello, everyone, and welcome to today's webinar, "Beyond the Basics: Comprehensive UCC Searching for Lenders." My name is Annie Triboletti. I will be your moderator kicking things off today.

So joining us today are Russ Lash and Julia Cleaver. Russ is a financial account manager, and Julia is one of our senior sales engineers here at CSC. So with that, I'd like to turn things over to Russ and Julia.

Russ: Thanks, Annie, for the introduction. Welcome, everyone, and thanks for joining today. Before we cover the UCC search content, first some facts about CSC's UCC business.

CSC is the leader in UCC solutions, which means we monitor 9 million UCCs annually. We process 7 million UCCs annually. We're proud to report a 91% NPS. If you're not familiar with NPS, it stands for Net Promoter Score. It's a 200 point scale, ranging from -100 to 100. It's a tool that measures customer loyalty, asking about the likelihood of recommending CSC to a friend or a colleague. An NPS of 70% and higher is considered world-class service, and CSC is sitting at 91%. We also have the largest UCC industry database, which is advantageous with UCC searches and also retrieving images of UCC filings. Fifty states and global jurisdiction availability. We're nationwide, and we've been around UCC since the inception.

About us, we are the world's leading provider of business administration and compliance solutions. We have a global reach that spans across five continents. We're the trusted partner of choice for more than 90% of the Fortune 500. Over 125 years of ownership. We've been in business a long time. Again, a world-class customer service with a 91% NPS. And we're privately held.

CSC not only offers UCC and due diligence solutions, but also business compliance, like formations, entity management, registered agent, annual reports. Also fund solutions, like treasury management, SPV administration, and capital markets, like independent director and escrow agent, and domain security and brand protection, like anti-phishing and brand monitoring. CSC has experts in all these areas to assist.

Today's agenda, first, we'll cover essential UCC concepts. Second, we'll cover search basics and best practices. Third, additional resources, like due diligence practices beyond UCC.

Two important words you'll hear in the UCC world are perfection and priority. First, about perfection. It protects third parties that are not subject to the security agreement. The difference between perfection and non-perfection could be the difference between collecting everything owed versus collecting nothing owed. The most common method is by filing a UCC financing statement. Also it could be called an original UCC filing or UCC1 filing. That's putting notice to the world that a UCC exists. It makes security interest enforceable against the claims of third parties. As it provides notice of the security interest to third parties, those third parties could be folks like bankruptcy trustees or unsecured creditors so that they can protect themselves.

Second about priority, that's the order in which the competing claims are satisfied. A debtor could grant more than one security interest in the same collateral. The general rule is that the priority ranks from the earlier time of filing. So it could be first to file gets first in line for the debtor's assets.

There is an exception, which is the purchase-money security interest or referred to as PMSI. PMSI is essentially a super priority. It provides a secured party with the first priority security interest in the purchase-money collateral, even if the other creditors hold earlier perfected security interest. We tend to see this with consignment transactions, like jewelry transactions.

Notice filing. The UCC is a notice filing system. It just merely indicates that a security interest may exist. It's a publicly recorded notice document. UCC records provide minimal information. So UCC records do not provide all the details of a transaction. The contents are very basic, containing the debtor name or debtor names, secured party name or secured party names, and the indication of collateral. So you may not see things on a UCC filing like dollar amounts or terms and conditions or any other kind of sensitive information on that statement because it is a publicly recorded document.

Duty of further inquiry. Interested parties are not permitted to rely solely on the contents of the filed UCC records. So look beyond the details of the UCC filing.

Role of the filing office. The role of the filing office is ministerial. It's a neutral repository for UCC public notices. Article 9 removes filing office discretion from the filing process. Filing is a machine process, which means the filing office cannot exercise judgment, as in the office will not edit or correct a submitted UCC filing draft. They will just file the UCC. So it's important to ensure, for the filer, that the debtor name is correct, the collateral is sufficient and correct, and all other details are correct and complete.

Duties of the filing office. They index the records for retrieval by debtor name or filing number. Again, they file the UCC and don't fix errors. That's the sole responsibility of the filer to make sure that UCC filing is correct and complete. They will reject only for a reason set forth in Section 516(b), standard set of rules set forth by statute. Remember this, the filing office has no duty or power with respect to perfection, priority, and effectiveness of the UCC filing.

Next up, UCC search basics and best practices. CSC's role, a few items. CSC provides UCC self-searching capability, yielding instant results with CSC Lien Perfect for Lenders. Demonstration coming up later with Julia, as stated.

CSC supports our customers' UCC searching needs and recommends that they consult their attorneys for legal guidance. And CSC empowers our customers to review and interpret UCC results independently. So please consult with your legal counsel to interpret UCC search details, results, and to find out more about perfection and priority that relate to the UCC search results.

UCC search basics, customer responsibilities. Again, it is a filer's responsibility to file with the correct debtor name and correct location. So you want to obtain legal entity names, ensuring they are spelled correctly, and identify state of incorporation and, where applicable, principal place of business, and determine what's needed to be searched and where. So the point of these three bullet points that I just mentioned, the starting point would be the public organic record, like articles incorporation. And lastly, you'll need to exercise reasonable diligence investigating the results, which means further inquiry beyond the public record.

Names to search. Debtor's correct name. So you want to check the articles as amended for business name, and for an individual, the individual's correct name and the name on the driver's license. Again, start with the public organic record.

For prior debtor names, in Section 507, for a business name, you want to check for amendments to articles that modified the name. You want to look at the name history of a debtor. For an individual, ask individuals for prior name use information. You could also ask the debtor for additional naming information.

For merged or acquired businesses, Section 508, you check articles for any entity merged out of existence. A debtor who was a survivor of a merger or acquisition, UCCs filed on the merged or acquired entity could still be effective against the debtor. So it may not be enough to search just the debtor's correct name.

Search locations. Location of the debtor, determine the jurisdiction under Section 307. Search location is where filed and search filing office designated by Section 501. Generally, a debtor's location, as in generally it's a state of formation for a business, generally the primary residence for the individual. And search prior jurisdiction for one year following the move that changed the governing law.

Now for location for fixtures, timber, and minerals, the local law of jurisdiction where goods are located governs perfection by a fixture filing. Search filing office designated by Section 501. So you may need to search in the real estate records. Special consideration is given to the area of searching office for fixtures of a transmitting utility. For those of you not familiar with a transmitting utility, those are entities that own, operate, or control facilities used in the transmission of electric energy.

In addition to UCC searches, CSC also offers what we would generally call standard due diligence searches. UCC and more. The standard due diligence, generally this is kind of what customers will ask for when they're asking for like a standard due diligence search. It would fall under this umbrella. So it could be tax liens, retrieving state and federal tax liens, non-payment of taxes, judgments, court records where the debtor is subject to liens from a court order, pending litigation, debtor is the plaintiff and/or defendant, and bankruptcy records of a debtor.

It may go further into additional due diligence. We do offer services like certificates of good standing, or also something called a certificate of existence. Some jurisdictions will issue a good standing. Some jurisdictions will issue a good standing or a certificate of existence. We verify if the business is in good standing with the jurisdiction.

We also offer searches to reflect, also called STRs, also called post-filing searches. So we hear all the nomenclature with that. Those are post-filing search. It ensures that the filing is reflecting and indexed. It shows how it's indexed. So you can always look at that and see how the jurisdiction indexed that. It's important to check that, well, basically to see if the file was indexed correctly by the jurisdiction. Corporate name verifications, the exact legal name and state of incorporation.

So some key considerations. Lien filing locations vary by state. Liens can be filed either at the SOS or the county level. So always consult with your legal counsel on best practice or where to search. Search requirements vary by jurisdiction. Tax liens and judgment liens may be indexed with UCC records in certain jurisdictions. It just depends on the jurisdiction.

You always want to continue ongoing due diligence. We offer UCC monitoring that can help identify post-close filing changes, things like bankruptcy monitoring, corporate monitoring, and debtor monitoring. So with bankruptcy monitoring, it will monitor for bankruptcy filings that the debtor file for bankruptcy. Corporate monitoring will alert of any kind of corporate name change, status changes, things like falling out of good standing, not filing annual reports, not paying taxes, mergers, dissolutions, things like that. And then for debtor monitoring, it's to monitor for any new UCCs that are filed against your debtor after you filed a UCC, or if a UCC filing was wrongfully terminated.

So it's always a good practice to monitor because when somebody files a UCC, their job is not done. It's now the monitoring aspect takes over and making sure that you perfect your lien.

Filing office information. Search through dates. Search through dates, well, it's the date that a jurisdiction has indexed lien and litigation records. So, obviously, items filed after the search through date are unlikely to appear on the search results. They just simply won't reflect because it just hasn't caught up yet to reflect that indexed lien or litigation record.

Indexing errors. Clerical errors can be made by the filing office, and an error, for example, relating to the debtor name that will affect the results. So be aware of filing offices. Don't be aware of filing offices. But just be aware that filing offices can make mistakes. So be vigilant and checking that after the UCC is filed and through the search records, making sure that a UCC filing is indexed correctly.

And then lapsed filings. By default, lapsed UCC filings are not reflected on searches. Through Lien Perfect, you have the opportunity to retrieve lapsed filings if necessary.

Order completion. When interpreting a search, verify the search includes copies of all records. Courts will hold that the searcher has knowledge of the full contents of each filed record. So you want to make sure to reconcile file numbers, file dates, and other information. And also take notice of any discrepancies that you may see.

Determine the effect of record. Big caution, it is impossible to determine the effectiveness from the record alone. Remember, UCCs are mere notices. Give the filer the benefit of any doubt. Further inquiry is required outside of the public record to verify. Also important to understand that the effect of all UCC3 amendments. And contact the parties involved to learn the full state of affairs.

UCC traps. There are a few of these. So first, the termination that does not terminate. Allegedly terminated financing statements may be fully effective. We cannot determine if a UCC termination is effective from only the public record.

Second, the UCC3 assignment that does not assign. The assignment does not assign a security interest. It assigns the right to amend the financing statement and generally add another secured party.

Third, collateral interpretation. You want to read that information broadly, the collateral. The same asset can be covered through any number of different collateral descriptions.

Fourth, failure to conduct further inquiry, one of the biggest traps. Public record is the starting point, not the end result in further inquiry. Searchers cannot rely on the public record alone. So we always stress that. I think I've said it multiple times during this webinar already, that we do talk about that.

And then, lastly, not a search trap, but a solution is CSC's truncated search logic. CSC recommends that the searcher does not run a UCC search by exact name due to potential for misspellings, noise words, punctuations, name variations, things like that. CSC's Lien Perfect uses truncated search logic to capture variations in the debtor name.

UCC search result charts in Lien Perfect. UCC search results are an easy-to-read, executive-style format. The chart can be delivered instantly upon completion of an order. So in Lien Perfect, you can run the search yourself with CSC truncated search logic, and then it will allow for quick and efficient review of the UCC search results, which simply means you get instant search results for conducting that search. And the preferred formats, we offer reporting of UCC search results in either PDF or Excel. Some customers like PDF, some like Excel.

Next, CSC Lien Perfect for Lenders. CSC Lien Perfect for Lenders is our next-generation platform designed to redefine how lenders manage their UCC filings and UCC searches. Lien Perfect for lenders has the largest UCC database in the industry. This all-in-one solution streamlines workflows, enhances compliance, and mitigates risks, making your UCC and due diligence efforts easier.

It has a user has a user-centric design. It's very easy to use. It's laid out very nicely. It's organized. Efficiency and innovation. It's a streamlined centralized platform. It's a nationwide platform for UCC work. And then market leadership, CSC is the industry leader in UCC services, backed by decades of knowledge, UCC product knowledge.

You'll notice on the right side that there are some features of Lien Perfect. I'll touch on a few of these key areas. There are lots of great features of Lien Perfect.

One of them is dual filing view. That's really cool. I really like that for filers. Visibility to see the template and the filing form simultaneously. You can enter the information in some text boxes when you're preparing your UCC filing. And then it's a split screen where you see it on the other side on the filing form. You see it entered in real time on the filing form.

Enhanced search interface, again truncated search logic and detail reporting. The details of the search will follow you as you go through the search and the different stages of that search. So that way you know exactly. It's kind of like an audit trail, just to kind of help you see: What search logic did I use? What name? It's everything's laid out very nicely.

Audit logs, monitor who is doing what in your Lien Perfect account, timestamps. State and county validators, that's ensuring that your UCC filing is meeting jurisdictional requirements.

Self-import template, you can do a self-import. So if you have existing UCCs and you want to import them into Lien Perfect, you can do a UCC1 and a UCC3 import.

So lots of different features here. I didn't even touch on all of them, but a lot of different features that we offer. And also the CSA Entity Check, too. CSC Entity Check will ping the state database and provide similar names based on the name that you put in and give you information about the corporate name, like whether it's active or delinquent, or whether it's domestically formed or it's foreign formed, meaning from another state, and it'll give you that information. So that's really helpful in filing the UCC.

B2B integrations, business to business integrations, otherwise known as like an API integration. That's what we call it a lot. CSC can integrate your existing customer relationship management, CRM, or loan origination or processing systems with Lien Perfect for Lenders for greater accuracy and efficiency in the filing process. So as you can see here, there's a list of kind of the common interfaces that we work with, like Salesforce, Odessa, LaserPro, InfoLease. If you're building a proprietary interface, we can also connect with that through API integration. And then many customers engage our B2B integrations as their UCC workflows scale, and it really does help with their efficiencies.