the diligent ucc search: tips & traps

THE DILIGENT UCC SEARCH

TIPS & TRAPSFEBRUARY 2017

Presented by: Paul HodnefieldAssociate General CounselCorporation Service Company

© 2017 by Corporation Service Company®

UCC is a Notice Filing SystemFinancing statement is not a lien.Financing statement merely indicates a security interest may exist.Details of the transaction are not part of the public record.

Effectiveness of Filed RecordsEffectiveness depends on whether the proper party authorized the filling of the record.Authority cannot be determined from the public record.

Interested Parties Must Conduct Further Inquiry! Additional inquiry of the parties involved is necessary to learn all the details of the transaction.

Essential Search Concepts


Allocation of Risk Filer must “get it right.”Searcher has broad general risk of indexing errors, search logic deficiencies and correct interpretation of the records.

Searcher’s Responsibilities Locate all records relevant to the transaction.Correctly interpret the effect of all disclosed records.

Risk Arising from Insufficiently Diligent Search Subordinate priority of resulting security interest.Enforcement difficulties if debtor defaults.

Essential Search Concepts


Filing Office Role is MinisterialUCC Article 9 does not permit filing offices to exercise judgment or discretion regarding what to file or what to report on a search.

Filing Office Cannot Determine Effectiveness A filed record is not necessarily and effective record.Filing offices generally have no power to make a record effective or ineffective. Those who search the UCC records are solely responsible for determining whether a record is effective.

Open Drawer Policy Search results include entire filing history related to the financing statement.Ensures searchers have all relevant information.

Role of the Filing Office


The Search:

1. Must Include All Relevant Names

2. Must Cover the Correct Location(s)

3. Must Employ Appropriate Search Logic

4. Must Include Copies of All Disclosed Records

Elements of a Reliable Search


Name(s) to SearchCorrect NamePrior Name(s) – § 9-507(c)Name(s) of Merged or Acquired Entities – § 9-508(c)Name of Transferor of Collateral to Debtor – § 9-315(a)(1)

Jurisdiction(s) to SearchUCC – Mirror the filing location rules.Tax LiensOther Statutory Liens

Search LogicUse name variation search logic for due diligence.Use certified search (standard search logic) for search to reflect.

Search Issues


Filing Office Information

Search Interpretation


Types SequentialIntelligentHybrid

Examples of Embedded File Number Information:File Date File TimeFiling Office (if multiple within state)Order of FilingType of RecordData Entry ClerkCheck Digit for Validity

File Number


File Number Examples

Washington Dept. of Licensing

Arkansas Secretary of State


State May Use Different TermArkansas: “Filing ID”Colorado: “Master ID”

File Numbers May Change System upgrades may lead to new numbering systems.

File Number May Not be Clearly Identified

File Number Issues


File DateGenerally stamped on the UCC record image.Should be the date received by the filing office.Compare to file number that includes date code.

Lapse DateUsually found only on the filing office summary listing, not the UCC record image. General rule is that it should be exactly 5 years from the file date.

SignificanceDiscrepancies between filing office provided data elements may indicate problem with the search or index.Discrepancies must be explained before anyone relies on the search results.

Other Filing Office Information


UCC Record Contents



Debtor NameCaution: debtor name variations may be sufficientFurther inquiry is necessary to verify whether an insufficient debtor name makes the record ineffective.

Debtor Address & Organization InformationOnly required to avoid rejection under §9-516(b).Not required by § 9-502(a) for a sufficient financing statement.

Secured Party NameNot held to the same standard as a debtor name!

Secured Party AddressOnly required to avoid rejection under §9-516(b).

Best Practices:Do not disregard effectiveness of UCC record with matching debtor name based on any of this information.

Party Information


Must Reasonably Identify the CollateralCan provide specific or general description, including "All Assets.“ See §9-504 and §9-108.May be by type defined in the UCC.Category, formula or any other method that reasonably identifies the collateral.

Serial & Model NumbersMinor errors in serial or model numbers are generally not seriously misleading.

Best Practice:Give filer the benefit of the doubt. Courts expect an interested party identify specific collateral through further inquiry.

Collateral Information


UCC3 Amendments



PurposeIndicates the financing statement to which it relates is no longer effective.

Interpretive Considerations A termination statement is just a form of Amendment.An unauthorized termination statement is ineffective.

• See effectiveness rules in § 9-510(a) and §9-509(d). Multiple secured parties.

• A record filed by one secured party of record has no effect on the financing statement with respect to other secured parties. See §9-510(b).

Termination Statement


Never Assume a “Terminated” Record is IneffectiveAn allegedly terminated financing statement may remain fully effective to perfect a security interest in the debtor’s assets.

Treat the Termination Statement as a NoticeA termination is a notice that the security interest may not exist.

Review All “Terminated” Financing StatementsNo search is diligent without careful review of the filed termination statements.Filing office should maintain the records until one year after lapse.

Rely on Record only if Secured Party ConfirmsThe effectiveness of any termination statement can only be established by contacting the secured party of record to verify that it did authorize the filing of a termination statement.

Termination Statement Recommendations


PurposeExtends effectiveness of record for an additional 5-year period.Keeps record active in filing office searchable index for an additional 5-year period.

Interpretive Considerations A continuation statement filed more than 6 months before the lapse date is not effective.A continuation statement filed after the lapse date leaves the security interest unperfected.

Caution Filing office may assign a wrongfully rejected continuation statement with a file date after the lapse date when later accepted.Check filing office lapse date calculation, especially at the county level and more especially when continued more than once.

Continuation Statement


PurposeIndicates that the secured party was an assignee of the named assignor.

MethodAssignee is listed as secured party on the UCC1.Assignor is listed in the additional secured party field of the UCC1 Addendum.The “ASSIGNOR S/P’s Name” box is checked on the UCC1 Addendum

Interpretive ConsiderationsAssignee secured party is the secured party of record.Assignor is not a secured party of record. § 9-514(a).Omission of the Assignor has no effect on the UCC1.

UCC1 Assignment - § 9-514(a)


PurposeProvides notice that a secured party has assigned some, or all of its right to amend a financing statement to another secured party.

Interpretive ConsiderationsAn assignment simply adds a secured party of record.An assignment does not delete or replace the assignor as a secured party of record.

Common RisksAssuming the assignor secured party is no longer a secured party of record.Failure to send notices required under Article 9 can hinder secured party's ability to enforce claim.

UCC3 Assignment - § 9-514(b)


Amendment Filed After TerminationCannot "revive" an effectively terminated financing statement.

• Continuation merely continues whatever effectiveness remained after termination.

May indicate secured party was unaware of unauthorized filing.Conflicting Amendment Actions

Amendment may indicate incompatible changes, such as an assignment and termination.May place searcher on notice that further inquiry is necessary.

Missing AmendmentsSystem issues may prevent a search from disclosing an effective amendment .Common indexing error overlooks one of multiple amendment actions.

Other Amendment Search Interpretation Issues


Conducting a Reliable SearchSearch all the necessary debtor names.Conduct the search in the correct jurisdiction.Use the Right Search Logic for the JobOrder Copies of All Records Disclosed

Interpreting the Results Reconcile all file numbers and dates.Review sufficiency of record contents.Give benefit of doubt to the filer.Understand the effect of every amendment.

Conduct further inquiry whenever necessary!

Summary of Best Practices


Q & A

Thank you: Paul HodnefieldAssociate General CounselCorporation Service Company2345 Rice Street, Suite 230Roseville, MN 55113

Toll Free: 800-927-9801, ext. 61730Direct: 651-494-1730Cell: 952-649-1555Email:[email protected]

This presentation is not intended to be legal advice. You should not act or rely on any information contained in this presentation without seeking the advice of an attorney.

Q & A

the diligent ucc search: tips & traps

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