What to Watch for When Filing In-house, Part 2
When we left off in our last post, we had described two cases of UCC filings where the name of the debtor did not match with the legally accepted form of the name. The situation applied to both a company name and an individual person’s name. In the case of Ronald Markt Nay v. Leaf Capital Funding, LLC (U.S. Bankruptcy Court for the Southern District of Indiana), it was a matter of following the code.
Where the real answer lies: Section 9-506 of the Uniform Commercial Code
The court explained that, under Section 9-506, the variation of a debtor name on the financing statement is not considered seriously misleading if it is uncovered during a search of the full, correct name using the filing office’s standard search logic and while searching the filing office’s official records. In this case, the filings containing the name variant were not found when a search of the correct name was made, and thus the filings are legally ineffective.
State-issued I.D. is the standard
The easiest way to ensure the correct name is used on the UCC is through the debtor’s driver’s license. In 2013, the 2010 amendments to Article 9 took effect. Among other provisions, the amendments provide that a driver’s license (or state-issued I.D.) is the correct source for determining an individual debtor’s name for a financing statement. The majority of US states require that the name used on a UCC to match exactly to the name on the borrower’s driver’s license. This standard allows for no misinterpretation – regardless of personal preference, the name listed on their license is what should be listed on the UCC-1.
But there is another option called the “Safe Harbor” option. The name on a borrower’s driver’s license is sufficient, but it is understood that it may not be the only version of a name used. In these cases, the court can determine acceptable legal names and therefore standing. While this provides a degree of flexibility, it can make for a more difficult due diligence search.
Other Helpful Tips for UCC Lien Perfection:
Relying on the Certificate of Good Standing for the correct debtor name in no longer an option. Such information is deemed “compiled data”, or, in other words, individuals manually entered this corporate information into the system. Therefore there is a chance this information was entered incorrectly.
When it comes to recording company names, a DBA or FKA should not be included. Instead, list the DBA as a separate debtor is in order to include all possible names. You may also want to leave the DBA information off the UCC to avoid confusion.
Additionally, record the name exactly as it appears on the legal document.
These are some other common shortcuts or mistakes that could void your UCC-1 entirely:
- Using an ampersand in place of the word “and”
- Recording a numeral where the document uses the written version of a number (“3” instead of “three”)
- Creating a plural for a singular company name (“Sons” instead of “Son”)
- Punctuation where there is none, or leaving out punctuation
- Extra spaces
Another way to mitigate risk in filing UCCs is to have help. Because of non-uniform processes in Secretary of State offices and county jurisdictions, not to mention the search logic used in their systems, every single filing can become a source of unnecessary risk. Aligning with a partner like Lien Solutions can bring single-point access to all jurisdictions, correct use of names and other information on UCC filings, as well as the ability to manage every lien in a portfolio for its entire lifecycle.
We work with business of all sizes to mitigate risk and ensure correctness of UCC forms before submission. Drop us a line with any questions or with a request to speak to a lien management expert. We’ll be back soon in this space with part three of our blog series on the things you cannot miss when managing your lien portfolio.