UCC Filing Fundamentals for Legal Professionals

Annie: Hello, everyone, and welcome to today's webinar, "UCC Filing Fundamentals for Legal Professionals." My name is Annie Triboletti. I will be your moderator kicking things off today.

So joining us today are Helena Ledic and Julia Cleaver. Helena is the associate general counsel for CSC, and Julia is one of our senior sales engineers specializing in UCC. So with that, I would like to welcome in Helena and Julia.

Helena: Hi, to the audience. This is Helena speaking. Very nice to speak with you today about UCC filings. And Annie, thanks for getting us started off. And I'm going to pass things over right now to Julia.

Julia: Thank you, Helena. Welcome, everyone, and thank you for joining today's UCC filing webinar. With over 125 years of experience, CSC is the world's leading provider of business administration and compliance solutions. CSC is a trusted partner of choice for more than 10,000 law firms and over 90% of Fortune 500 companies.

As you can see on the slide, we have a global reach across 5 continents and expertise in over 140 jurisdictions worldwide. As a global company, we are capable of doing business wherever our clients are, and we accomplish that by employing experts in every business we service. CSC is truly the business behind business.

CSC is the world's leading provider of business administration and compliance solutions. We have our eyes and hands in many different services throughout the legal service sector, from entity management and compliance, digital brand services, registered agent services, corporate filings and documents, and UCC search and filing.

Our UCC lien filing and monitoring as well as UCC search services fall under our Transactions and Lending solutions as well. CSC is the leader in UCC services. We monitor over 9 million UCC transactions, and we process over 7 million UCC transactions annually.

Please reach out if you would like further information on any of CSC services. I will now turn it over to Helena, who will walk us through UCC filing fundamentals and best practices.

Helena: Thanks so much, Julia. So why exactly are we meeting today everybody? What we're going to do is we're going to learn about UCC filings. But before we do that, let's actually take a step back and talk about what a UCC is because some members of our audience may not know what that is.

So a UCC filing refers to a public record, that's filed under the UCC Article 9, that gives notice that a creditor has a security interest in a debtor's personal property. In simpler terms, it's sort of how a lender stakes its claim on collateral tied to a loan. In its own way, it's very similar to the concept of a mortgage that I think probably everyone in the audience is going to be familiar with.

So why does this actually matter then? It puts the public on notice that the lender has an interest in the debtor's assets. It helps determine priority if multiple creditors are involved. And it's certainly critical in scenarios like bankruptcies or defaults.

So during today's session, we're going to talk a little bit more about these filing concepts, these basics and best practices. Then Julia is going to jump into that review of Lien Perfect and how it can help you in your practice, and she's going to give a demo. And as we mentioned, we're going to finish up with the Q&A.

So again, let's get started over here with our filing concepts. So what we're going to be talking about today to get things started is perfection and priority. And everybody has to have this as a takeaway from today, just the basics around perfection and priority.

So perfection protects those third parties that aren't subject to the security agreement by making sure that they have the interest in the collateral secured. The most common method of doing that is by filing a UCC financing statement, which is why we're meeting today, and that's what we're going to be talking about as we go further in terms of talking about our filings with UCCs.

And the key with perfection is that it makes the security enforceable against the claims of third parties. So by filing that document in the public record, you've made the world aware that you have a claim to the collateral that is listed inside that security agreement. The UCC may list what the collateral is. But at the end of the day, the thing that matters the most is that that security agreement is actually what secures the collateral. It's the UCC filing that actually gives that notice.

Now let's talk about priority here. Priority is the order in which the claims are satisfied. So think about it as in the order in which UCCs are filed is probably the order in which the claims are going to be satisfied, meaning the first one filed, first in time, first one right. There are very, very few exceptions to that. And the second person or the second filer will get whatever is left over after the first one. And the third person gets what is left over afterwards, and so on. In the event of a bankruptcy, it could be certainly to the point that there is nothing that's left over for anyone.

So that's your concepts over here with perfection and priority that we want to talk about. And one other thing, if I can add in before we move on to the next slide, is that the rule is that priority occurs whichever comes earlier, the time of filing or perfection. Again, first in time, first in right. And the rules are for that under the UCC law at § 9-322. So there's an exception to things like purchase-money security interest filings, but that's going to be outside our scope today.

So again, remember perfection and priority. So the other thing that what we want to really highlight for you with the essential concepts is that the UCC filings, the UCC system is, at its core, a notice filing system. It indicates that a security interest may exist. But you really, really have to get down to those transactional documents behind the UCCs because the UCC records themselves are not enforceable. So I talked about that on the last slide. It's that underlying, that transactional document over there is what holds that security interest. And again, those UCC records are not enforceable. So keep that in mind.

The UCC records often only provide minimal information. They don't provide all of the details of the transaction, and that's certainly by intent and design. The idea is that there are certain aspects of the transaction that are private and should remain private, what's been bought, maybe what the interest rates are, what the terms are. But that UCC just lets you know that certain parties have engaged in a transaction where certain items of collateral have been pledged.

Now, of everything that Julia and I talk about today, if you take away only one thing from this webinar today, it's this third point that's listed over here on this screen, and that's the duty of further inquiry. You cannot rely on the record itself. The record is just that there is a notice that there is something out there. It's a good indicator. It's helpful. But again, as I've mentioned a couple of times, you need to drill down into those transactional documents so you can understand the details. In the upcoming slides, we'll end up talking and we'll give you more context around all of that. But again, remember, you've got that duty of further inquiry, and that's where you have to reach out to the parties. You have to look at those documents. You just cannot rely on the actual UCC filing itself.

So let's talk about another concept that we have today here, and that is the filing office. So the role of the filing office is ministerial. And what that means is that Article 9 removed any discretion from the filing offices in their file and search process. It's really important that we understand that because any filing that's submitted that meets the requirements or the sufficiency requirements of the UCC is going to be put in the record whether or not it meets the perfection requirements. So it can get filed, but it doesn't mean that it's perfect. The filing office doesn't exercise any discretion, judgment, or independent investigation into the accuracy, validity, or the legality of the filings.

So another thing that's really important to remember here is search and filing is a machine process. And because it's a machine process, it's limited to the capacity of the programming and the machines. And sometimes that can end up being challenging for other people out there who are trying to find information.

So the duties of the filing office are to index the records for retrieval by the debtor name or the filing number. There are reasons that it can reject it, and those are set forth in § 9-516(b). But they can only report those records that actually match the search criteria after applying standard search logic. So again, you've got over here file and search is all kind of intertwined over here. But there are very few exceptions to why the filing office can reject something. So the filing office has no power to things such as perfection, priority, effectiveness.

And certainly, as you're going about doing searches, doing filings, this is where it's very helpful to have a service company, such as CSC, that can help you navigate this. We do this all day long. You may not do it again.

And again, if I can summarize this slide up again, to reiterate it one more time, that UCC filing office does not exercise any discretion, judgment, or independent investigation into the accuracy, validity, or the legality. That's outside the scope of the filing office. So that may be a legal issue to determine, but they do not exercise any responsibilities or any discretion there.

So now let's talk a little bit more about the filings themselves, and let's get into the basics and the best practices over here. So what we want to talk about, over here on this first slide, is duration and effectiveness.

So the general rule, under Article 9, is that a financing statement is effective for five years from the date of filing. There are a few exceptions to that. Wyoming passed a law in 2013 that extends the duration and effectiveness out for 10 years as the general rule. Wyoming is the only state so far.

Another exception that occurs is if the financing statement indicates that it's being filed in connection with a public finance or manufactured home transaction. In that case, the record ends up being effective for 30 years under Article 9. But a little bit of caution around that. There are a few states that have got non-uniform provisions that don't recognize the extended effectiveness for these types of transactions. So if you're filing a public finance or manufactured home transaction, make sure that you're checking with the applicable law in that state where the record is going to be filed to determine what that lapse date will be. So, for example, if you're filing in Nebraska or Tennessee, the record is effective for 40 years there.

There's another big exception over here with transmitting utilities. So if the financing statement somehow indicates that the debtor is a transmitting utility, that record itself doesn't lapse. It's effective until that's terminated. And that's the case in every state, but for one, Georgia. Georgia actually also has some non-uniform duration and effectiveness provisions and doesn't recognize any extended effectiveness. So all UCC financing statements filed in Georgia are actually effective for only five years.

Another thing to take away over here is that the five-year duration and effectiveness may not always be enough. So it could be that the financing is going on for more than 5 years, maybe 10 years, 15, 20, whatever it should be. And then, for that reason, Article 9 provides a rule to allow the secured party to extend the effectiveness beyond the initial five-year period. And that's by filing a continuation statement.

The general rule with filing a continuation statement is that the secured party can file that, and it's going to extend it for another five years. And that's the case even if you are dealing with public finance or manufactured home transactions. So remember earlier, we had said 30 years. But if you're doing a continuation, it's not another 30. It's that five under the applicable section of Article 9, and again it's that five-year continuation. So that's what happens over there.

Now the timing of the continuation statement is really, really critical over here. So if you're the type who likes to take a note, this is a good place to take a note. That continuation statement has to be filed within the six-month window before the lapse date. So the secured party has got to file it inside that six-month period. If it's filed more than six months before the lapse date or filed at any point after the lapse date, the continuation statement will not be effective to continue the effectiveness of the financing statement. And that's the case even if the filing office accepts the continuation, it indexes it, and even resets the lapse date, because, remember, the filing office can't change the effectiveness of a record. The effectiveness is always determined by the filer and the filer's compliance with meeting the Article 9 requirements.

Now once a continuation statement is filed, it extends that effectiveness for five years from the date the financing statement would have lapsed in the absence of a continuation. It doesn't extend from the date the continuation was filed. So remember, it's five years from the lapse date, not five years from the filing of the continuation statement.

So the continuation statement can be filed anywhere within that six-month window, and it will extend that lapse date to five years from the prior lapse date. So again, keep that in mind over here.

So let's talk about another basics over here, and that's talking about the filing location. So with that, we have to talk about the both the governing law and then the location of the assets. So the filer has that obligation to get the correct filing office. If it's not filed in the correct filing office, the UCC record is not going to be effective. That's it. Not filed in the right spot, not effective.

Now determining where that correct filing location is, is actually a multi-step process. You have to determine which state law governs perfection and priority. Generally, the law of the state where the debtor is located is going to govern perfection and priority. So the state where the debtor is located is typically the state in which to file.

So once you determine the location of the debtor, then it's necessary to look at § 9-501, as enacted by that state where the law governs perfection of priority. At this point, it's then going to direct the filer to the correct filing office within the state. Now everyone, or I shouldn't say everyone, but the general rule of thumb here for most types of collateral is that it goes to the central filing office for the state where the debtor is located. So that's why you need to determine where that location is of that debtor.

Now the location of the debtor under § 9-307 is determined by the type of debtor. So you can see over here, we've got registered organizations, other orgs, individuals, other special types of debtor. But the most common type of debtor that we see and that's out there with a commercial transaction, under § 9-307, is the registered organization. And that includes your corporations, your LLCs, your limited partnership, and really any type of entity that comes into existence through the filing or the issuance of a public organic record. So think about that. Probably typically a document that you're filing with the secretary of state.

So if that debtor is a registered or organization, it's then located in the jurisdiction where it was formed or organized. So for example, you can have a corporation that was formed in Delaware, we see that so often, but the actual headquarters of the company may be in California. All of its employees may be in California. All the assets may be in California. But nevertheless, the proper place to file would be in Delaware because that's where it was formed or organized.

Other types of organizations that don't typically fall within the definition of a registered organization have slightly different rules. So therefore, the rule is to look at the where the debtor is located at the place of business. If it has more than one place of business, then you look at where the chief executive office is located. So the general rule of thumb in those situations is look to the location of the CEO's office or headquarters, and the law of that state then governs perfection and priority.

For an individual, it's where the individual is located at his or her principal residence and whatever that state is located.

Now those are the primary types of debtors that we see out here. Others have got special rules. We're not going to go into those today because of time reasons. But I do want you to be aware that they happen to exist.

So let's dig a little bit deeper now into the filing locations, and now let's talk about some of these exceptions that are out here. So an exception for filing in the jurisdiction where the debtor is located occurs when the debtor is located in a jurisdiction that does not have a filing system.

So under Article 9, if the debtor is located in a jurisdiction that does not provide the public filing or registration of security interests in order to obtain priority over the rights of a lien creditor, then the debtor is deemed to be located in Washington, D.C. Now this most commonly occurs when the debtor is located in a foreign country. Many foreign countries don't have Article 9 equivalents of the filing system. Some do. More are getting them, but a fair number don't. But I will say Canada, New Zealand, and Australia all have personal property registries that are based upon the UCC as it was enacted in the U.S. But other countries may not have that direct equivalent to the UCC. And so it's questionable as whether filings will end up where you meet those requirements.

So there then you have to kind of take that step back. If that debtor is located in a foreign country, with the exception again of Canada, Australia, and New Zealand, it's going to be necessary to file in the District of Columbia. And in practice, that's what filers do. But then they still typically end up backing it up by filing in the state where the foreign debtor conducts its business in the U.S., and that's where they try to perfect to the extent necessary under the laws. And then I should say also that they may still try to perfect in that country where the debtor is located to the extent that that's possible.

But even inside the U.S. borders we've got examples of jurisdictions where there isn't a requirement for a filing or registration of security interests, and those are jurisdictions with sovereign Indian tribes. So there are a number of tribes within the U.S. that have enacted secured transaction laws, and so the sovereign Indian tribes are treated as the equivalent of a state. If you do have something that comes up that involves a sovereign Indian tribe, please reach out to your UCC specialist at CSC. They can walk you through it because every single tribe is going to have different rules and requirements around this.

So now let's talk a little bit more about the filings, and let's go to the filing office and let's look at that within that given state. So now the general rule, under Article 9, is that for most types of collateral the place to file is a central filing office of the state where the debtor is located. And again, that's why we've got to be able to identify that location of the debtor. And the location of the debtor is determined by the type of debtor. So as we mentioned earlier, that most common type of debtor in a commercial transaction ends up being that registered organization. And remember, this includes those corporations, LLCs, limited partnerships, that type of thing, something that comes through the issuance of that public organic record.

So we talked a little bit about this earlier. If the debtor is that registered organization, it's located where it was formed or organized. So remember, you can have that Delaware corporation, where it was formed in Delaware, but the headquarters may be in Illinois. And you can have all the employees in Illinois, assets in Illinois, but remember that filing place is going to be Delaware because that's where it was formed or organized.

Other types of organizations that wouldn't fall under the definition of registered agent organizations, the rule is a little bit different. So there, again, the rule is where the debtor is located, at its place of business, and if it's got more than one place of business, the chief executive office. And that's where then the law covers that.

So an exception to the central filing office is where the debtor is located in a state that doesn't have a central filing office. And that's two states where that comes up. Georgia and Louisiana. You would record there at the county or the parish level. And again, if you have any questions at all about this, please reach out to your UCC specialist at CSC, and they can walk you through this.

Another exception that we have over here to the central filing office is if where the debtor is located has to do with certain types of collateral that are actually real estate related. So we've got three that are out there — fixtures, timber to be cut, and minerals to be extracted. For fixtures, those are typically so integrated into the real property that any interest in the goods would end up transferring by deed. So another type of real estate-related collateral, timber to be cut and minerals to be extracted, and again, those are so closely related to real estate, there's that overlap with real estate law. And therefore, in order to get your priority over conflicting encumbrances on that same real property, they're treated differently, and they're handled differently.

So under the default rule, where the governing law is law of the jurisdiction where the debtor is located, for real estate-related collateral like this, it's the law of the jurisdiction where the goods are or where the fixtures are located. So the general rule here is the state where you file is where the fixtures are located or the timber to be cut or the minerals are to be extracted. Where those are located, that's where the real property is.

So again, the general rule, under § 9-501, you file in the same office where a mortgage would be recorded in those instances. So that's what would be on that affected property. So they get filed in the real estate records. They get indexed in the real estate records because that's where people are looking for those real estate interests. So it provides not only the UCC notice, but it also gives that notice to anyone that is involved in the real estate transactions.

Now there's an exception to this, and that's Louisiana. We get a lot of questions about Louisiana. Louisiana doesn't have real estate filings for UCCs at all. All of them are located in the central index, even fixture filings. So kind of keep that in mind over here.

So now let's talk about what is actually included in those UCC financing statements. So we have over here the debtor information, the secured party, and then the indication of the collateral. And we actually put an arrow next to the debtor information and the name because that's why it is so incredibly critical to be able to get this correct. So we'll be talking a little bit more about this. But with the exception of being able to put this in big, giant, neon letters and 20 point font, that's why we put in this arrow over here to make sure that you understand that.

So we have to include the debtor's name and address. The secured parties need to be listed on that financing statement. And similar to the exact debtor information, the exact name of the secured party needs to be listed, along with a mailing address.

Now the indication of the actual collateral can be vague. The actual security agreement will typically go into specificity on collateral that's being secured. But that UCC financing statement can be as generic as all assets or accounts receivable.

So now let's go a little bit more into the debtor name concept. So remember how we start. We put that arrow there to kind of signify just how important it is. So we're going to like really dig into this now.

So the primary purpose of that debtor name field on the UCC financing statement is to enable the accurate retrieval of records to make sure that that perfected security interest can notify other creditors out there. So any types of misspellings, small errors, or punctuation mistakes can make a filing seriously misleading, and therefore it's ineffective. So when we look at § 9-503(a), it lays out the obligations for the debtor's name and the types of collateral, but the filer has to get this correct. This is their obligation that's over here.

So let's go into this a little bit more into a little bit greater detail. So the filer is responsible for getting the correct name. So the filer has to examine the public organic document or the driver's license in the case of an individual. So when we talk about the public organic document, that's going to end up being what we can see is what was filed with the secretary of state's office, that filing office over there, what the name of that entity is. For individuals, we look at the driver's license. That ends up providing their correct name. So we look at all of that over there.

And then, remember, the filing office is only going to file the information that's listed on that financing statement. So it's not going to have other variations or possible nicknames or anything like that. It's not going to be doing that. Remember, they don't review for the sufficiency, their accuracy. By law, they don't consider the perfection and priority. All what they do is they actually file that statement to make it retrievable using search language.

So, oh, I jumped one slide too many over here. So let's look at a couple of examples over here. And these are some examples where things ended up becoming seriously misleading over here.

For the top one, you can see in little tiny font is it says the Organization's Name. And you can see it provides only one debtor name. Well, on that one, you can see that there are multiple debtor organizations that end up being listed over there.

And the second one, the organization name is not See Exhibit "A." It should have been something like that ABC Corp or LLC, or whatever it would have been, not See Exhibit "A." So you can see in the top example, where you have a lot of those different debtors over there, somebody tried to do that in the second example by doing See Exhibit "A," probably had multiple over there. But that was, again, seriously misleading.

And then on our bottom example over here, that organization name, chances are that is not going to be Stephen's name over here. This should have been where if it was going to be Stephen was the actual debtor, that should have been listed as an individual person over there, or there should have been that appropriate corporate indicator, or whatever it should have been. But again, that ended up becoming seriously misleading.

So let's talk a little bit more about these debtor name requirements. I alluded to this a couple of slides ago. For an individual name, it needs to be exactly the way it appears on that valid, state-issued driver's license. If the individual doesn't have a driver's license, use a state-issued ID card. So keep that in mind over there. And certainly I would make sure that when you look at those driver's licenses and those state ID cards, I would probably also kind of just make that quick check in there along with real IDs because then you know that you actually have the exact name that would be on there.

For a registered organization, such as an LLC or a UCC, use that exact name as it appears on the public organic record. And typically, that's going to be the name that's registered with the secretary of state. If for some reason that entity changed its name, use the most recent name from the public organic record. For those entities, again, it's so important that you get the exact name. If a name includes a dot at the beginning, make sure it's included. If the word "Corporation" is spelled out, use that. If instead they use the abbreviation "Corp," file only using the word Corp."

And then if you have an instance where collateral is administered by a personal representative, make sure then that you use the name of that decedent that's over there.

So let's talk a little bit more about the debtor name requirements. These are a few of the more less frequent times that we'll see something. It's going to be collateral held in a trust. Some of those other organizations where the debtor doesn't have a name. These situations, especially around trust, can become really confusing. If you find yourself in a situation such as one of these, where you're preparing a financing statement for this, make sure that you're looking at that statute really correctly. Read it carefully to make sure that you're filling out that financing statement correctly. So again, especially around trust, these can be really, really confusing over here.

So let's also talk about debtor name sufficiency. So we've got to comply with § 9 503(a). I've mentioned it several times. Any mistakes with the debtor's name is problematic. And in the world of the UCC, you'll hear the phrase "seriously misleading." And I've mentioned that also. That filing office has got no discretion on the sufficiency of the name.

So there are very few exceptions where a filing office can reject a filing a financing statement, and debtor name sufficiency isn't one of those. So this is why you've got to get this really correct over here. Some states will allow for possible deviations around spacing, punctuation, noise words, such as "the." But not all of them do. So that's why you also need to actually look at the rules, the statutes for those states.

So we'll look at a couple of examples over here where you can see some mistakes over here. You can see we've got the debtor name normalization issue over here. So Article I, the exact name of the corporation is Paul's Repair, Inc. But you can see that that normalized correct name is PAULSREPAIR. It took out that quotation mark over there. And then the normalized UCC name is PAULSREPAIRINCRECORDOWNER. So do you see how that's showing up over there? It's because the organization name showed up as PAUL'S REPAIR INC, with the parens around RECORD OWNER. that showed up in the normalized name.

Again, this is going to be something that's going to be seriously misleading. The normalized correct name, for this state, would have been PAULSREPAIR, over here, not including RECORDOWNER owner in there.

We have a couple of other examples over here that show up. THE ASPEN UTILITY COMPANY, or I should say TEH ASPEN UTILITY COMPANY LLC. If I were being the one typing this up, I could completely see myself making this mistake, where I just make that simple little typo. Hopefully, I would have caught that. but that's a typo over there. And while some states ignore the word "the," they're not going to ignore the word "teh." So that's an example over here of something that's seriously misleading. That's not going to be that entity's name over there.

And then you can see in the next example that we have over there is that adding in "AN OHIO LIMITED LIABILITY COMPANY" was extraneous and then caused this filing to also then become seriously misleading.

So those are some things that you can take away over here from the entities. And again, you made a mistake with "the," and unfortunately that makes it seriously misleading.

Oh, I think I jumped one. Oh, I was going to say we're not going to actually turn it over. I was right there. We're going to come back now, and we're going to jump back to Julia and she's going to talk us through some Lien Perfect for law firms to be able to help you with your practice. So, Julia, come on back and take it away.

Julia: Thank you, Helena. So before I give a high-level demo or demonstration of Lien Perfect, which is CSC solution for quickly creating and submitting UCC filings, I would like to highlight some of Lien Perfect's features. I'm going to quickly walk through how Lien Perfect will allow you to simplify your work filing workflow, save time, and file with greater accuracy and security.

So filing with accuracy, we have real-time validations that are built into the platform for all the jurisdictions, state and county. Party and collateral description library. We have a library where you can save in your party names that you're repetitively using, as well as collateral descriptions. That way you can either default them into your filings, or you can pick them from a pick list instead of having to consistently copy/paste them or re-key them.

We also have the ability in Lien Perfect to autopopulate continuations and terminations. So if the UCC-1 or a prior UCC-3 filing is in Lien Perfect, you're able to copy directly from that filing, pulling all of the pertinent filing information to create those continuations and terminations without having to repeat anything.

You can create single or multiple copies of filings. So if you have the same filing over and over that has the same secured party, same collateral, same debtor address but different debtor name, you can actually make five copies of the same filing and just put in the debtor name. All other information will populate.

You can do a single or bulk export of filings to PDF. Meaning that if you have a large project and you've created 20 UCC filings, instead of having to pull them out individually, you can go into your project and filings area and pull all 20 into one PDF.

We also have the ability to do global edits on UCC-1s. So if you've gone in and created all of those filings in your project and you sent them off and they came back and they said that the debtor address should be 321, and you have it in as 123, you can do a global edit and change that on all of the filings all at one time instead of having to individually edit.

For security, as you can see from this slide, we handle the world's largest banks and organizations. We have the highest security expectations. All of these organizations fully trust CSC for security. Let's see. All of our applications and data are maintained on CSC servers in a U.S.-based ISO. And everything is certified and audited hosting environments. We do do SOC 2 Type II assessments, and they are conducted annually by third-party auditing firms for CSC. And we also employ stringent data access processes and controls. And we have business continuity and disaster recovery in place to ensure there are no interruptions to your daily workflow.