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Security Requirements for Special Assets
Practical Law Legal Update 6-564-9825 (Approx. 4 pages)
Security Requirements for Special Assets
by Practical Law Finance
| Published on 16 Apr 2014 • USA (National/Federal) |
Update on certain assets with security requirements outside or in addition to the UCC.
In a secured financing, counsel refers to the Uniform Commercial Code (UCC) for the requirements for taking a security interest in most types of assets. However, certain assets have security requirements outside or in addition to the UCC. When dealing with these kinds of assets, lenders often require specialist counsel to ensure their security interest is properly attached and perfected.
Creation of a security interest varies by type of asset:
- For real property, laws vary by state but generally the security interest must be in writing and executed by the grantor.
- For other types of assets, creation of the security interest generally requires an agreement, value to be given and rights of the grantor in the asset that are capable of being transferred.
Perfection of a security interest also varies by type of asset. Common examples of assets with requirements outside or in addition to the UCC and their related methods of perfection, are briefly dealt with below:
- Certain intellectual property. In addition to filing a UCC-1 financing statement (UCC-1) that covers all intellectual property, lenders must file a security agreement at the US Copyright Office for registered copyrights and commonly file a security agreement at the US Patent and Trademark Office for patents, registered trademarks and applications for both. For more information, see Practice Note, Security Interests: Intellectual Property.
- Aircraft and related assets. A mortgage or related instrument must be filed with the Federal Aviation Administration. Lenders should also file UCC-1s to perfect their security interest in related collateral. Security interests in aircraft and engines subject to the Cape Town Convention on International Interests in Mobile Equipment and the related Aircraft Protocol will also need to be registered at an International Registry created by the Convention. For more information, see Practice Note, Security Interests: Aircraft, Vessels and Rolling Stock.
- Real property. In most states, a security interest in real property is perfected when the instrument is recorded in the recorder’s office of the county where the real property is located. For more information, see Practice Notes, Basics of Secured Commercial Real Estate Financing and Commercial Real Estate Loans: Overview.
- Railroad rolling stock and related assets. A mortgage or related instrument must be filed with the federal Surface Transportation Board. Lenders should also file UCC-1s to perfect their security interest in related collateral. For more information, see Practice Note, Security Interests: Aircraft, Vessels and Rolling Stock.
- Vessels and related assets.. A ship mortgage or related instrument must be filed with the US Coast Guard, if appropriate. Lenders should also file UCC-1s to perfect their security interest in related collateral. For more information, see Practice Note, Security Interests: Aircraft, Vessels and Rolling Stock.
- Foreign collateral. If the lender decides to take security in an asset located outside the US, it should consult with local counsel in that country to ensure that its security interest is created and perfected there and that there are no tax or other local legal issues. For more information, see Practice Note, Security Interests: Cross-border Issues.