What is a UCC Filing?
How does a UCC filing work?
What are the benefits or drawbacks of such filings?
In this article, I will break down the notion of UCC Filing so you know all there is to know about it!
Keep reading as I have gathered exactly the information that you need!
Let me fully explain the notion of UCC lien filing and so you know how it works!
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What Is A UCC Filing
UCC filing refers to a legal notice filed by a lender with the secretary of state or equivalent agency to register a security interest against an asset.
“UCC” refers to the “Uniform Commercial Code” and “filing” refers to the “legal notice” that has been filed to signal to the public that a security interest has been recorded against an asset.
By filing the UCC legal forms, a creditor gives notice that it has a legal interest in a person’s personal property or a company’s business property.
A UCC filing where a security interest is recorded against an asset is like collateral or a lien is taken on the debtor’s asset.
When a lien is registered against a property, the creditor can take possession of the property belonging to another person to satisfy the terms of an agreement, loan, or a secured transaction.
Uniform Commercial Code
Every state in the United States has the ability to adopt laws or regulations on different areas, including the sale of goods.
However, for businesses and consumers to deal with one another across state lines, there needs to be a uniform set of rules that can apply to provide the business environment harmony and predictability.
The Uniform Commercial Code was there adopted to govern the sale or trade of goods within the United States allowing for a more “uniform” set of rules to apply sale and acquisition transactions.
The objective of UCC is to adopt a set of rules and regulations relating to the sale of goods that can be applied in a uniform and harmonious fashion across different states.
The Uniform Commercial Code is composed of nine articles, as follows:
- Article 1: General Provisions
- Article 2: Sales
- Article 2A: Leases
- Article 3: Negotiable Instruments
- Article 4: Bank Deposits and Collections
- Article 4A: Funds Transfers
- Article 5: Letters of Credit
- Article 6: Bulk Transfers/Bulk Sales
- Article 7: Documents of Title
- Article 8: Investment Securities
- Article 9: Secured Transactions
UCC Filing Definition
When someone is referring to “UCC Filing”, they are referring to the UCC-1 Financing Statement representing a legal form used by creditors to give notice of a security interest they have on a debtor’s asset.
In the business world, UCC filings are quite common.
Whenever a business obligates itself towards another in the context of a secured transaction (where collateral is given), then the creditor will perform a UCC lien filing to ensure that it registered its legal interest against the business property.
For example, if a business gets financing to purchase equipment, the lender will register a lien against the company’s equipment to ensure that the company will reimburse its debt.
How UCC Filings Work
Typically, you will hear about a UCC filing or UCC-1 Financing Statement when you are engaging in a transaction where you will give an asset as collateral to the other party.
For example, if you are looking to buy a new car, borrow money to purchase equipment, or take a personal loan where collateral on an asset is required from you, you will need to perform a UCC filing.
If you agree to give a creditor an asset to guarantee your contractual obligations or the reimbursement of the funds you are borrowing, your creditor will file a UCC-1 Financing Statement to formalize the lien against your property.
The UCC filing generally includes the lender and borrower’s names and addresses, a description of the property given as collateral, along with other relevant information required on the UCC-1 filing form.
When the UCC filing is completed with the secretary of state (or equivalent agency), the notice will be available publicly available for anyone to view.
UCC Filing Collateral Assets
What assets can you give as collateral under UCC?
The truth is that it could be any asset of value that you and the lender agree to use as a collateral asset to secure a particular transaction.
The ultimate objective here is for the lender to register a lien against an asset (of value) that it can legally take over should you fail to pay back your loan or default on your obligations.
In many cases, you can expect UCC filings to be performed on land, buildings, homes, real estate properties in general, personal assets like cars or other valuable goods, business assets and more.
Assets that are valuable to you may not necessarily be valuable as collateral to a lender.
As a result, whenever you are involved in a transaction where the lender will require collateral on an asset that you will pledge to guarantee your obligations, the lenders will likely perform an evaluation of the asset to see if it can be satisfactory to them.
It’s important to keep in mind that the creditors cannot take any personal property or all your business equipment.
There may be state has laws that may exempt certain personal or business property from being seized or foreclosed by creditors.
If you are dealing with a situation where a lender is looking to take over an asset, you should consult with a qualified business attorney or bankruptcy lawyer to better understand your rights.
UCC Filing Benefits
What are the benefits after filing a UCC 1?
We can look at the benefits of USS filings from the perspective of the creditor and the debtor.
From the creditor’s perspective, UCC filings provide protection to creditors against the debtor defaulting on its obligations.
For example, if a lender financed a company allowing it to purchase property, by registering a lien against company property, the lender is assured that if the borrower does not repay its debt in full, the collateral can be realized to guarantee repayment.
From the borrower’s perspective, there are also benefits in going through a UCC filing.
Some borrowers may not have a great credit history but own high-quality assets that can be given to creditors to secure a transaction.
In this case, through the UCC filing mechanics, a borrower will be able to get financing that it would not have otherwise been able to get.
Also, borrowers may also get more favorable financing terms when they give an asset as collateral to their creditor.
This will help the borrower save money by paying less interest on the loan or getting more favorable financing conditions.
UCC Filing Drawbacks
Here is a question you may have: is a UCC filing bad?
The answer is that it depends.
The main drawback to a UCC filing is that it will appear on your credit report.
As a result, if you have many creditors having filed a UCC-1 Financing Statement against your assets, you will have your credit report showing all these filings.
If you need to get more financing, you may have a hard time finding another creditor to lend you money as you have too many filings on your credit report disqualifying you for further financing.
For the borrower, the main drawback is that a UCC filing may prevent you from getting financing from other creditors.
As for lenders, there are no major drawbacks with UCC filings.
In fact, the process is designed primarily to protect their interests.
If a creditor runs a check on your asset and sees that another creditor has filed a lien against it, it will simply refuse to take the asset as collateral (the creditor is actually protected here).
Also, if your asset is not subject to a lien, the creditor may record a lien against it to secure a transaction (it is protected here as well).
UCC Filing Term
In many cases, a UCC filing will be valid for a period of five years.
If you have not paid off your loan or you continue to have debt that must be secured, your lender can file the necessary paperwork to have the lien renewed for another period.
If you have discharged your debt, a lender may also just let the lien expire by the passing of time when the term is over.
Even though the lien may expire, the UCC filing will remain on record until it is formally removed by filing the necessary documents (UCC-3 financing statement).
Removing A UCC Lien
If you have a UCC filing tied to your name or business, you may want to have that removed to the extent the loan or secured transaction is terminated or discharged.
The best thing to do is to get a copy of your latest credit report and identify any UCC filings that should be removed.
It happens that the creditor did not remove its UCC filing once the loan was paid off or the agreement terminated either by mistake or something had gone wrong in the processing of the request.
One way you can find UCC filings is by looking at the National Association of Secretaries of State that has an online UCC filing tool allowing you to search through UCC filings.
There are also service providers that can investigate the matter for you for a fee.
Once you have paid off your loan or discharged the debt, the lender must file a UCC-3 termination statement to remove the filing on your collateral asset.
UCC Filing Example
Let’s look at a couple of examples of UCC filings so we can better illustrate the concept.
Example 1: UCC Filing on Personal Property
A UCC filing can be done on personal property given as collateral to secure a transaction.
Imagine John is looking to get financing to buy a new car.
A lender may offer John the financing he needs to buy the car but in return will want a UCC lien registered against the car to ensure that the car loan is fully paid off.
When John purchases the car, the lender will file the necessary UCC forms to ensure that a security interest is registered against the automobile.
The lender’s UCC-1 Financing Statement will ensure that the public is given proper notice that John’s lender has a claim against his vehicle.
Example 2: UCC Filing on a Business
Imagine that Mary operates a small business selling shoes.
Mary is looking to expand her business and purchase more equipment to produce shoes faster to satisfy incoming orders.
Mary’s company obtains a business loan to purchase the equipment she needs from Company ABC.
To ensure that Mary’s company respects her loan obligations, Company ABC performs a UCC filing with the state securing a lien against the equipment purchased.
If Mary’s company does not pay back the loan, Company ABC can take possession of the equipment and sell it to reimburse the loan.
Now that Mary’s company has obtained financing from Company ABC, if she goes to another lender and asks for more financing on the same equipment, the new lender will see that the equipment is already given as collateral to Company ABC.
The new lender will therefore refuse to finance Mary on the same equipment.
UCC Filing Meaning Takeaways
So there you have it folks!
What is UCC filing?
How does the Uniform Commercial Code filing work?
How do I know if I have a UCC filing?
In a nutshell, UCC filing refers to the process where a creditor notifies the public and other creditors that it has registered a security interest on a person’s asset as collateral for a secured transaction.
For example, if you are dealing with a creditor for a loan or financing, they may require that you put up an asset as collateral so they can “secure” their transaction.
The “UCC filing” is a system designed to protect lenders and creditors in allowing them to register a lien against personal or business property and provide notice to the public that the asset in question is subjected to their lien.
A UCC filing may be performed against any type of asset of of value of a business or personal property, such as:
- Investment securities
- Accounts receivables
- Letters of credit
- Tangible goods
- Real estate property
I hope I was able to give you a UCC filing definition and respond to questions you may have such what does a UCC filing mean or what are the benefits after filing a UCC-1.
You can verify if you have a UCC filing by looking up the secretary of state’s website in the state in question or you can use the National Association of Secretaries of State’s UCC filing system having a roaster of Secretary of State offices.
You can also hire a service provider to do the research for you for a small fee.
If you have specific legal questions or are dealing with a particular issue, you should consult a business lawyer who understands UCC filings so you can get accurate legal advice.
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What Does UCC Filing Mean (Summary)
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