UCC Article 9 Search Basics for Lenders

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Annie: Hello, everyone, and welcome to today's webinar, "UCC Article 9 Search Basics for Lenders." My name is Annie Triboletti, and I will be your moderator.

Joining us today is Russ Lash. Russ is a financial account manager at CSC. He's responsible for building relationships with customers, and since joining CSC in 2010 Russ has improved the customer experience by shortening workflow turnaround times and decreasing processing times. So with that, I'd like to welcome Russ.

Russ: Thanks, Annie, for the introduction. Welcome, everyone. Before we explore the content, first some facts about CSC. CSC was founded in 1899, so we've been around a long time. We're a global company headquartered in Wilmington, Delaware, but we have offices worldwide. More than 60 years serving the financial industry. We process more than 6 million UCCs annually and monitor more than 9 million UCCs annually. We also work with more than 3,000 financial customers. CSC is also the largest U.S.-owned provider of lien-related services as in the UCC and due diligence, registered agent, entity and litigation management, and digital brand services.

In addition to the services that I mentioned on the last slide, we also provide notably the fund solutions at the bottom and also the capital markets.

Today's agenda, we're going to cover essential Uniform Commercial Code concepts, search basics and best practices, additional resources. We'll get into the CSCFinancialOnline demo, and I'll show you how that works. And then finish with Q&A.

Two important pieces to UCC – perfection and priority. First, with perfection, there's a few bullets here. Protects third parties that are not subject to the security agreement. Most common method is by filing a UCC or a UCC financing statement. It'll make security interest enforceable against the claim of third parties.

And then with priority, priority just means it's the order in which competing claims are satisfied. The general rule is that priority ranks from the earlier time of filing or perfection stated in UCC Article 9 Section 322. There is one exception to priority, and that would be the purchase-money security interest or also referred to as PMSI. You would reference that at UCC Article 9 Section 324. Generally with a PMSI that creates a first priority security interest.

So some more things to know about UCC. The UCC is a notice filing system. So that just merely indicates that a security interest may exist. UCC records are not enforceable. UCC records provide minimal information. So this means a UCC record may not provide all the details of a transaction, which also then leads to further inquiry. Interested parties are not permitted to rely solely on the contents of filed UCC records. So that could just mean that further due diligence is needed.

Essential Concepts: Role of the Filing Office. This is important. Role of the filing office is ministerial. Article 9 removed the filing office discretion from the filing process, which makes it a machine process. The filing office does not check the UCC info for accuracy.

Duties, index records for retrieval by debtor name or file number. Reject only for a reason set forth or, I'm sorry, the filing office will only reject only for a reason set forth in Article 9 Section 516. And then also, the filing office has no duty or power with respect to these three key items – perfection, priority, and effectiveness.

All right. Next up, Search Basics, Basics and Best Practices. CSC's role with UCC. CSC provides a UCC self-searching capability yielding instant results with CSCFinancialOnline, which is our self-service web portal. You'll see more about that later on in the demo. As a UCC and due diligence vendor, CSC does not provide legal guidance nor does it interpret results of UCC searches.

UCC Search Basics, Role of the Customer. So as a customer, you want to obtain legal entity names, ensuring that they're spelled correctly. You want to identify the state of incorporation and, where applicable, principal place of business. You want to determine what is needed to be searched and where. And also you want to exercise reasonable diligence investigating the results.

Debtor Names to Search. So a debtor's correct name would be found in the articles as amended, that would be for a business entity, or an individual's correct name and name on the driver's license, that would be for an individual person. Prior debtor names, Article 9 Section 507, you'd want to check for amendments to articles that modified the name. You also want to ask the individuals for prior name use information. So that's important to know. Also merged or acquired businesses, according to Article 9 Section 508, you want to check articles for any entity merged out of existence.

UCC Search Locations. Location of the debtor, so you want to determine the jurisdiction under Article 9-307. You want to search the filing office designated by Article 9-501. You also want to search prior jurisdiction for one year following move that changed the governing law. And then when it comes to location for fixtures, timber, or minerals, you want to find the local law of jurisdiction where the goods are located that governs the perfection by a fixture filing. You want to search the filing office designated by Article 9-501. You also want to search the office for fixtures of a transmitting utility, and that will also be Section 501. A transmitting utility would be things, for example, like energy pipeline, railroad, electrical transmission, things of that nature.

More UCC Information. So this slide deals with what else can you do from a due diligence perspective. So what is considered a standard due diligence search? So we offer other different types of services in addition to UCC, for example, tax lien, state tax lien, federal tax lien, judgment lien, litigation searches, bankruptcy searches, things like that. And then from state to state, there is a variation where liens are filed.

Filing Office Information, searching the through dates. The through date is the date that a jurisdiction has indexed the lien or litigation records. Items filed after the UCC search through date unlikely to appear on search results. Indexing errors, sometimes these happen. Clerical errors can be made by filing office, and an error, for example, related to the debtor name will affect results. Hence why we have truncated search logic in CSCFinancialOnline. So you'll see later on in the demo that you can actually run a UCC search with that truncated search criteria, which would create an environment where you could get as many results as you can with the fewest amount of searches with the truncated search criteria.

And then lapsed filings, lapsed UCCs are not reflected on searches, not as a rule. However, you can run a lapsed UCC search in CSCFinancialOnline.

Completing the UCC order, you want to verify the search includes copies of all records. So the courts impute to the searcher knowledge of the full contents of each filed record. You'll need to reconcile the file numbers, file dates, and other information.

And then also you want to determine the effect of record. So it is important to know that it is impossible to determine the effectiveness from the UCC record alone. UCCs are just, again, they're mere notices. So you want to give the filer the benefit of any doubt. You also want to understand the effect of all UCC3 amendments, and you want to contact the parties involved to learn everything you need to know, the full state of affairs.

So there are some possible traps with a UCC search that you'd want to be aware of. The first is the termination that does not terminate. So allegedly terminating UCCs may still be fully effective. Second, the UCC3 assignment that does not assign, so the assignor remains a secured party of the record. Third is collateral interpretation. So the same asset could be covered through any number of different collateral descriptions, so that's important to be aware of. And then lastly, failure to conduct further inquiry. Searchers cannot rely on the public record alone. So it may require some more, some extra due diligence on the searcher's part.

Next up, CSC Resources. UCC Search Results Charts. So here's some graphics and some text about what to expect with a UCC search through CSC. So the first, UCC search results is an easy-to-read, executive-style format. You'll see that coming up in the demo what a UCC search looks like. It allows for quick and efficient review of the UCC results. Again, everything is laid out, the information that you need is laid out in a very organized manner. The chart can be delivered instantly upon completion of an order. So in CSCFinancialOnline you get instant UCC results, so that's great. And then also preferred formats, so you have the option in CSCFinancialOnline to retrieve either a PDF formatted report or in Excel, depending on whatever your preference is.