ucc 201: advanced issues for searchers and filers

UCC 201:Advanced Issues for Searchers and Filers

December 5, 2017

This presentation is for informational purposes only. Nothing in this presentation should be construed as legal advice or counsel.

December 15, 2017 | Proprietary and Confidential

Lacey BowerFinancial Account Manager, CSC®

• Speaker on UCC searching and filing best practices

• Works with banks of all sizes, lenders, lessors, and manufacturing companies

December 15, 2017 | Proprietary and Confidential 3

We are the business behind business

• Founded in 1899

• Global company headquartered in Wilmington, Delaware

• Over 60 years serving financial industry

• Over 6 million UCC transactions processed annually

• Over 8 million UCC transactions monitored

CSC is the largest U.S.–owned provider of:

• Lien Related Services

• Registered Agent

• Entity and Litigation Management

• Digital Brand Services

Agenda

• PMSI

• Fixtures

• Post Perfection Pitfalls

• CSC Resources

• CSCFinancialOnlineSM Demo

• Questions & Answers

Purchase Money Security Interests

What is a PMSI?

• (U.C.C. 9-102(a)(48) A PMSI is a special type of security interest that enables those who finance a debtor’s acquisition of goods to acquire a first priority security interest in the purchase-money collateral, even if another creditor holds an earlier perfected security interest.

• Used by a seller of goods to secure the prices

• A person who advances funds to enable the debtor to acquire rights in the goods

• PMSI’s provide a “super priority” for the PMSI secured party limited to the good they enabled the debtor to acquire

Purchase Money Security Interests Concepts

Eligible Secured Parties:

• Seller of goods

• Lender that finances acquisition of goods

• Consignor of goods

Burden of Proof:

• The secured party has the burden of establishing the extent to which the security interest is a PMSI

• STRICT COMPLIANCE IS ESSENTIAL!

PMSI Priority Example

7December 15, 2017 | Proprietary and Confidential

• SP3 has priority in the specific machine

• SP1 has priority in all other assets

• Including all other equipment

• SP2 is probably out of luck

2010 2011 2012

SP1 files UCC on

“ALL ASSETS”

SP2 files UCC on

“EQUIPMENT”

SP3 files PMSI UCC on

“LASER WIGIT MODEL

#1234”

How is a UCC Record Filed to perfect a PMSI different from any other UCC record?

• No special form

• No statutory requirement to indicate the financing statement is a PMSI

• General collateral sufficiency rules apply

PMSI Perfection Deadline

General Rule:

• Secured party must perfect PMSI before, or within 20 days after debtor receives possession of the collateral

Exceptions to 20-Day Rule:

• PMSI in inventory*

• Consignment*

• Livestock PMSI

• Non-uniform state amendments

• Consumer goods

PMSI In Inventory

Perfection Requirements:

• PMSI must be perfected before debtor receives possession of the inventory collateral

• The 20-day rule does NOT apply!

Notice Requirements:

• Secured party must send an authenticated notification to the holder of a conflicting security interest

• Recipient must receive the notification before debtor receives possession of the inventory

• Notice is effective for 5 years

• Notice has specific content requirements

Consignments

When a consignor’s interest is a PMSI in inventory…

Rights of Consignee:

• Consignee is deemed to have rights and title to the goods identical to those of the consignor

• Consigned goods are subject to the claims of creditors and purchasers for value

Consignment PMSI Requirements:

• Perfect by filing before debtor receives possession of consigned goods

• Send notice to holders of conflicting security interests

• Ensure notice is received before debtor receives possession of the consigned goods

PMSI in Inventory – General Guidelines

1) File the UCC

2) Run a search to identify other secured party creditors (through date at state should be after your filing date)

3) Send PMSI notices

4) Deliver inventory collateral

PMSI Whitepaper*Available for download in the “Resource Widget”

UCC Fixture Filings

• What is a fixture anyway?

• General filing guidelines

• Filling out the addendum

What is a “Fixture?”

• Generally fixtures are “goods that have become so related to particular real property that an interest in them arises under real property law.” 9-102(a)(41)

• Some things taken into consideration in the determination of a fixture include:

• Ease of removal/degree of affixation

• Intention of the parties

• How essential the presence of the fixture is to the functioning of the real

property

Court Fixture Determinations

Fixtures

• Grain bins

• Airplane hanger

• Theater chairs

• Irrigation equipment

NOT Fixtures

• Grain bins

• Airplane hanger

• Large engine

• Hog buildings

The Courts Determine Fixtures on a Case-By-Case Basis!

Best Practice

If there is any question, treat goods as bothfixtures and personal property.

Filing Guidelines: Filing on Fixtures vs. Fixture Filings

• UCC fixture filings are generally filed in the county in which a mortgage would be recorded on the affected real property

• Filing on a fixture is done in the centralized filing office in the state which the debtor is located

(A mortgage may also cover fixtures)

What forms to file?

• Filing on a Fixture: File the UCC-1 form

• Fixture Filing: File the UCC-1 form and addendum

Fixture Filing Location Example

• Debtor is a Delaware corporation

• Fixtures are or will be located at property in Harris County, Texas

UCC-1UCC-1

Filing on

Fixtures

Fixture Filing

Delaware SOS Harris County Clerk, TX

Filling Out the Addendum

Summary

Filing on Fixtures:

• Filed in central filing office where debtor is located

• Priority may be subordinated to recorded real estate interests

• Effective for 5 years

Fixture Filing:

• Filed in real estate records where mortgage would be recorded on the related

real property

• Priority based on file date against both filing on fixtures and recorded real

estate interests

• Effective for 5 years

Post Perfection Pitfalls

Portfolio Monitoring

• Changes in your debtor’s name or status can affect your lien position.

• It is crucial to monitor your portfolio for changes and to prevent lapsed filings.

• There are simple, automated ways to receive alerts when things change.

Expiration Tracking

• Email notifications of approaching dates

• Copies of acknowledgements

• Filing numbers auto-populated into UCC-3

• Flexible reporting

• The notification frequency of your choice

Case Study

The most common post-perfection event that requires prompt secured party action is a change in the debtor’s name.

In Re: Lifestyle Home Furnishings, LLC

Failure to File Debtor Name Amendment Leaves Lender Partially Unperfected 2010 Bankr. Lexis 111

• (D. Idaho, Jan. 14, 2010)

• Ownership of Factory Direct, LLC changed

• (D. Idaho, Jan. 14, 2010)

• New owners changed name from “Factory Direct, LLC” to “Lifestyle Home Furnishings, LLC”

• (D. Idaho, Jan. 14, 2010)

• Debtor did not notify bank of name change

• (D. Idaho, Jan. 14, 2010)

• Consequently, the bank did not file an amendment or new financing statement

• (D. Idaho, Jan. 14, 2010)

• On April 7, 2008, the Debtor filed for Chapter 7 bankruptcy

• (D. Idaho, Jan. 14, 2010)

• On April 7, 2008, the Debtor filed for Chapter 7 bankruptcy

• Trustee filed an adversary proceeding to avoid the bank’s security interest and moved for a partial summary judgement on the grounds that the bank became unperfected four months after the Debtor changed its name

Corporate Tracking

Notifies you when a corporate debtor:

• Changes their corporate name

• Falls out of good standing

• Dissolves or merges

Debtor Tracking

• Alerts you to new filings against your debtor, including new lending and terminations (even yours!)

• Send email alerts with links to the tracking results

• Allowing you to evaluate findings and request copies if needed

Bankruptcy Tracking

• Any delay in responding to bankruptcy filings can be costly.

• Monitors court records and compares them to your…

• Copies of acknowledgements

• Filing numbers auto-populated into UCC-3

• Flexible reporting

• The notification frequency of your choice

CSC Resources

Secured Party Representation(SPRS)

• UCC financing statements are public record

• Anyone can access your customer list

• Using a secured party representative prevents competitors from identifying filings

• SPRS centralizes inquiries

CSC Blog *Formerly known as CSCTransactionWatch

• CSC provides you with an archive of filing office closings and communications, pending and new legislation, UCC Article 9 updates.

• August 1, 2017 the state of Delaware will increase its filing fee from $30 to $50

• Whitepapers

• Filing guides

• On-demand webinars

CSCFinancialOnlineSM

Questions?

Questions? Phone:

(800) 927-9801 x.63363

Email:

Lacey.bower@cscglobal.com

CSCglobal.com/resources

Where We are Today

180,000+Corporate

customers

10,000Law firm

customers

3,000+Financial

market

customers

65%+Best global

brands

2,500+Employees

worldwide

We serve more than 180,000 businesses, including

90% of the Fortune 500®

We support 10,000+ law

firms, including the most

prominent in the U.S.

We providesolutions to

3,000+financial market

customers

We protect more than 65% of the 100 Best Global

Brands®—including 7 of

the Top 10

We have more than 2,500

employees in over a dozen

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