Lenders as secured parties must file their UCC-1 Financing Statement expediently and accurately to properly perfect their security interest in loan collateral. If a financing statement is incomplete, inaccurate, or untimely filed, it may remove a lender from a position of relative priority and allow secondary parties to claim a priority position.
UCC-1 Financing Statements are utilized to effectively give third parties initial notice of the filing party’s interest in collateral. UCC-3 Financing Statements are utilized to terminate, continue, amend, or assign an interest identified under an already filed UCC-1. While a financing statement neither creates a lien or any additional rights against the secured party, it provides notice to the “world” that the filing party has rights in the collateral. Here are some common mistakes that secured parties make when filing financing statements:
*Failing to use the exact legal name
A UCC-1 Financing Statement must properly identify the debtor to effectively perfect a security interest. It is important that the debtor’s true and correct legal name is used on the UCC-1 Financing Statement. Because the essence of a business is contained in its documents of organization such as a partnership agreement or articles of incorporation, the name of a business as listed on these documents should identically match the name of the business as listed on the financing statement.
A common mistake related to non-individual debtors is to use the name of the business entity as listed in the records of the Secretary of State. A common mistake of individual debtors is to use a nickname or shortened version of a name on the financing statement. There has been a minimum of six reported cases where the financing statement listed the name of the debtor as “Mike” instead of “Michael.” All of the Mikes lost in each instance.
*Using the “dba” designation as part of the debtor’s name
There are many cases where a secured party includes a “dba” name to more clearly identify the debtor. Of course, while this comes with good intentions, it ignores the requirement of filing a financing statement that lists the exact legal name of a debtor. In the alternative, it would probably be wiser to omit the “dba” tag and list the alternate as a trade name under “additional debtor.”
*Failing to attach external documentation
Any reference to an external document is insufficient unless the financing statement has a copy of the referenced document attached. A Financing Statement that requires attachment pages to list specific collateral must not be deficient or the security interest may be unperfected. Missing attachment s may cause a financing statement to inadequately describe the collateral, which may cause a loss of priority position in the event of a competing interest.
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