Preparing, Reviewing and Releasing UCC-1s Toolkit

Resources to assist counsel in understanding the issues relating to the review of Uniform Commercial Code (UCC) search results, the preparation of UCC-1 financing statements to perfect a security interest and UCC-3 financing statements to terminate a security interest.

Practical Law Finance

In a secured financing, the borrower's payment and performance obligations are secured by a security interest ( www.practicallaw.com/7-382-3812) over all or some of the borrower's assets (collateral ( www.practicallaw.com/3-382-3343) ) in favor of the lender.

A perfected ( www.practicallaw.com/0-382-3684) security interest means:

  • The lender has rights and remedies against the collateral if the borrower breaches its obligations to the lender.

  • If the borrower goes into bankruptcy, the lender has additional recovery rights against the collateral compared to unsecured creditors of the borrower.

There are many categories of assets in which the borrower can grant a security interest under the Uniform Commercial Code ( www.practicallaw.com/1-382-3891) (UCC) including, without limitation, general intangibles ( www.practicallaw.com/1-382-3508) , accounts ( www.practicallaw.com/4-382-3210) , chattel paper ( www.practicallaw.com/0-382-3330) , commercial tort claims ( www.practicallaw.com/8-382-3350) , deposit accounts ( www.practicallaw.com/7-382-3398) , documents ( www.practicallaw.com/1-382-3419) , goods ( www.practicallaw.com/4-382-3516) , instruments ( www.practicallaw.com/7-382-3548) , securities accounts ( www.practicallaw.com/6-382-3803) , investment property ( www.practicallaw.com/2-382-3560) , letter-of-credit rights ( www.practicallaw.com/8-382-3576) , money and intellectual property ( www.practicallaw.com/5-382-3549) .

Security interests in most types of personal property can be perfected by filing a properly completed UCC-1 financing statement ( www.practicallaw.com/2-382-5069) (UCC-1) in the appropriate filing office for the borrower. The most common exceptions are deposit accounts, money and letter-of-credit rights. Filing the UCC-1 serves as public notice of the lender's security interest. The UCC-1 is not meant to be a summary of the underlying financing transaction or the security agreement.

A UCC-1 may be amended, assigned or continued by filing a UCC-3 financing statement ( www.practicallaw.com/1-382-3886) (UCC-3) that refers to the underlying UCC-1. Unless continued, a UCC-1 lapses five years after filing. If a lender wants to extend the duration of a UCC-1 that perfects its security interest in collateral, it must file a UCC-3 continuation statement within six months before the expiration of the UCC-1.

In addition, a UCC-1 can be terminated by filing a UCC-3. UCC-3s used for this purpose are known as UCC-3 termination statements. After the borrower repays all of its outstanding obligations under its loan agreement and the loan agreement is terminated, its counsel should ensure that the UCC-3 termination statement is filed so that the previously filed UCC-1 is removed from the record.

Before funding and taking security over the assets of a borrower, a lender typically need assurance that the borrower's assets are only encumbered by liens that are permitted by the lender. One of the ways a lender finds out about existing liens is by conducting lien searches.

This Toolkit includes continuously maintained resources to provide information on:

  • How to perfect a security interest by filing a UCC-1 and how to prepare a UCC-1.

  • How to terminate a security interest by filing a UCC-3 and how to prepare a UCC-3.

  • How to review UCC lien search results.

 

Practice Notes

 

Standard Documents

 

Checklists

 
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