Why Name Variations Matter in UCC Searching
In previous blog posts we have talked about the importance of a secured party listing the correct debtor name on their UCC1 Financing Statement. Remember, a UCC filing is only effective if it gets the debtor name right. A UCC filing that fails to properly identify the debtor by their exact legal name will not offer the secured party priority status to collect should the debtor default or file for bankruptcy. It is dangerous, however to apply the same “exact name” philosophy to UCC searching. When performing UCC searches, it’s a good idea to include name variations (aka similar names) in your search effort.
Here’s why:
Locating Tax Liens
Many state filing offices maintain tax lien records in addition to UCCs. In some cases, the tax liens are housed on the same index as UCC filings. The problem with that is that while UCC filers must endure strict scrutiny of their debtor names, the IRS is not held to the same standard when filing a Notice of Federal Tax Lien. In several key cases, the courts have favored the IRS over a secured creditor even though the IRS has not used the exact legal name of the taxpayer on the Notice. A search that includes name variations would help locate Federal Tax Liens that have imprecisely named the debtor.
Indexing Errors
A search to include name variations can also uncover UCC filings that have been mis-indexed at the filing office. Once a document is accepted for filing, the pertinent filing information is abstracted from the document and input into the state’s searchable index. The indexing of filings is a largely manual process and mistakes happen. Consider a UCC record that gets the debtor name right, but is misspelled on the state’s UCC index – this document will not be located using an exact name search even though it may be an active, perfected financing statement.
To reveal name variations, try using private online search system that offers broad-based name searching options such as wildcard characters and stem/truncated search logic. These features are designed specifically to help locate critical filings that might be missed using an exact name search methodology.
During the question and answer period following a recent First Corporate Solutions webinar event, an attendee asked a great question. She asked, “How long should I wait after filing my UCC to order the search to reflect?” This week, we’ll devote a blog post to sharing the answer with all of our readers.
As a refresher, a search to reflect is a search of the UCC records of the office where you filed, after your document has posted to the index. Since you have to wait for the UCC index to “catch up” to your filing date, it can be tricky to know when to place your search request.
Once a document is accepted for filing, the filing office must enter the pertinent lien information into their searchable index. This process takes time and is dependent upon their fluctuating workload. As such, it is impossible to calculate with certainty when to initiate a search to reflect. In most cases, an index date will be only a week or two behind the present date, but occasionally a filing office may fall several weeks or even months behind.
If you are handling your filings and subsequent searches internally, the best way to be certain the index date is sufficient prior to investing in a search is to consult with the filing office as to the currency of their database. If the filing office has an online searchable database, check the index date online; if they require a manual search effort, you can call the filing office and inquire.
For those who work with a private service company to manage UCC transactions, simply request the search to reflect from your vendor at the time you forward the filing. A UCC service provider will file the document and then monitor the index date of the filing office on your behalf. The search to reflect will be performed once the index date has advanced enough to reflect your filing.
Whatever method you choose, remember, a search to reflect is a critical final step in your UCC filing process to confirm proper indexing of your document and to verify your position relative to other creditors.
Top 5 Filing Mistakes on UCC1 Financing Statements
In a previous blog post, we offered a short list of errors to watch for when filing UCC1 Financing Statements. Since publication, several readers have asked for additional details on how to avoid committing UCC filing mistakes. In response to their requests, we have put together the following expanded list of the top five mistakes that occur on UCC1 filings.
1. Failing to file under the exact legal name
A UCC filing must properly identify the debtor to effectively perfect a security interest. To satisfy this requirement, it is critical to use the debtor’s exact legal name on your UCC1 Financing Statement.
For a business name that means the name is it appears on their formal organizing paperwork such as articles of incorporation/organization or partnership agreement.
Determining the exact legal name for an individual can be difficult. In most cases it will be the name on a person’s driver license or state-issued identification card, but it is a good to check the specific state UCC filing rules before filing on individual names to guarantee compliance.
2. Including “dba” notation as part of a debtor name
Examples: Debtor: John Smith dba ABC Trucking or ABC Trucking, Inc. dba Truck World
Secured parties will sometimes include a “dba” name as shown above in an attempt to more clearly identify their debtor. By structuring their debtor names in this way; secured parties are actually failing to file under the exact legal name. A better choice would be to add the tradename as an additional debtor, omitting the “dba” tag from the name.
3. Filing document in the incorrect filing office
Revised Article 9 established that UCCs are filed based on the location of debtor NOT the location of the collateral. Here is an overview:
- Registered Business: file in their home/domicile state
- Unregistered Business: file in the state where they have their chief executive officer
- Individuals: file in their state of residence
4. Missing attachment pages
If your Financing Statement requires attachment pages to list out specific collateral, make sure to carefully review all pages of the attachment before submitting the document for filing. Missing attachment pages can cause a UCC to inadequately describe the collateral, which could prove very dangerous in the event of a competing claim.
5. Incorrect filing fee
One of the primary duties of the filing officer is to ensure that proper payment is remitted. A document that is presented for filing with the incorrect filing fee will be rejected.
To guard against damaging filing mistakes, consider working with a service provider that performs a thorough quality review of your documents prior to submission. A well-trained eye can catch many of these before it’s too late!
Lien Monitoring Programs: What Liens To Search For
Once a creditor has filed their UCC Financing Statement they’ll likely want to do all they can to maintain their priority position throughout the life of the loan. Lien-monitoring programs offer a great way for a secured party to keep a watchful eye on other lien-holder activity against their debtor.
The concept behind lien-monitoring is that the sooner a creditor knows about a lien, the sooner they can act to protect their interests. These programs run interval searches on debtor names to check for any new filing activity and then provide timely updates to alert a creditor to potential threats. What follows is an overview of items creditors tend to include in their monitoring efforts.
Federal Tax Liens
Many people consider Federal Tax Liens the most urgent of all liens because, in some cases, they can prime a perfected UCC. For asset-based lenders in particular, it is critical to know about a Federal Tax Lien as soon as possible as there is only a 45 day window after filing of the tax lien where the UCC will provide a creditor with priority protection for newly made advances or taxpayer receivables.
UCC3 Change Statements
Monitoring debtor names for UCC3 change statement is important for two reasons. First, it may reveal that another creditor has amended the debtor name or address on their filing, alerting you to a change that may need to be made on your own filing. And secondly, a creditor can watch to see if any unauthorized changes are being made to their own UCC, such as a fraudulent termination.
State Tax Liens and Judgment Liens
Many secured parties also elect to monitor for State Tax Liens and Judgment Liens. For State Tax Liens, a lender would want to know right away if their borrower is failing to pay their taxes as it could be an indication of financial distress. Furthermore, in some states, in certain situations a State Tax Lien can prime a UCC much like a Federal Tax Lien. With Judgment Liens, they may not have the ability to trump your filed UCC, but they certainly are a good indicator of character.
New UCC Financing Statements
Lastly, creditors often monitor for new UCC Financing Statements to learn of any new junior creditors. Most standard security agreements have restrictions on the other kinds of financial arrangements a borrower can enter into. A newly made UCC Financing Statement could represent the breaking of a covenant.
If you decide to begin monitoring your accounts, be sure to do some solid research up front. And remember, liens can be filed at either the state or county level. For the most comprehensive coverage, look to a service that searches both state and county filing offices.
Secured Party is Responsible for Accuracy and Completeness of a UCC Financing Statement
Financing Statements are filed as a means to protect a creditor’s investment and give them a mechanism to collect should the debtor default. However, a filed UCC Financing Statement is not necessarily enough. To provide priority protection for the creditor, a UCC1 must be properly filed in accordance with the Uniform Commercial Code (The Code) and the specific rules of the jurisdiction’s filing office. Since only a properly filed UCC will perfect a security interest, it can raise the question of responsibility. Essentially, who is responsible for making sure a UCC document is properly filed?
According to The Code, the filing officer’s duties are to be strictly administrative in nature. A document that is presented for filing must only satisfy a set of minimum requirements to be acceptable for filing. In many states, a filing need only list a debtor name and address, a secured party name and address and include a collateral statement.
Many UCC filers operate under the misapprehension that the filing officer will “catch” their mistakes reject a document that threatens to leave them unperfected. In truth, if the minimum statutory requirements are met and the correct filing fee accompanies the document, the filing officer is directed to file it into the public record.
When filing UCCs, please always keep in mind that it is not up to the filing officer to verify any of the information on the document; the burden for getting the information right falls to the Secured Party.
A UCC report will look different and may contain slightly different information depending on where the search was performed and by whom. As a result, it can be challenging to make sense of a UCC search report if you are unfamiliar with how to “read” it. Knowing that an accurate interpretation of the UCC data that is reported to you is critical to the success of your business, we offer the following tips for how to read a UCC search report.
Review Search Parameters
Your UCC search report will indicate the parameters that were used to perform the search. Review these parameters closely to make sure your instructions were followed and the report was produced according to your specifications. Here you should be checking that the proper name was searched free of spelling errors, the search was performed in the correct filing office and that all requested lien types were included in the search effort.
Note the Index Date (aka through date)
When a UCC document is accepted by the filing office and assigned a date and filing number, the pertinent document information must then be entered into the state’s indexing system. This process takes some time, so the UCC index is always at least a day or so behind today’s date.
A UCC search should list an index date to inform you of how current the lien information is. If your search report does not reference an index date, contact your searcher immediately. Outdated lien information can impede your ability to determine current filing status, accurate party names and priority of claims.
Examine the Results
The results section of a search report details a chronological listing of the UCC and lien filings that were located based on your search criteria. The scope of information reported here may vary based on the data source, but most will include, at minimum, a date of filing, filing number, debtor name and secured party name. A more comprehensive search report will also disclose party addresses, type of collateral and filing lapse date. Any information not abstracted onto the search report can be learned by reviewing document images.
You will need to examine the search results carefully to determine if an existing claim would jeopardize your ability to collect on debts, taking into account the filing date, collateral and status of any items listed on your search report.
When hiring a private service company to perform UCC research on your behalf, consider asking for a sample search report up front to familiarize yourself with their reporting style and to confirm that the information you need will be included on your results report.
Lenders gather information from a variety of sources to create a comprehensive profile of an applicant’s existing financial obligations and gauge their ability to repay debts. By the time the lender is ready to initiate public records searches on a prospect, they often already have an idea of what they expect to find based on applicant disclosures and credit report information etc. However, it is uncommon for a lender to provide this information to their searcher. Herein, we suggest that it is a good idea to alert your searcher if you anticipate findings on your public records search request.
It isn’t “cheating” to let your searcher know that you are expecting certain records to turn up. Any party or lien information you can provide at the outset of the project will greatly improve the quality of your final results. Public records research is not an exact science; filing office records are idiosyncratic and abstracting pertinent information from the index can require some finesse.
Typographical errors occur, filings get indexed incorrectly, and subsequent filings get attached to the wrong original document. If a search does not yield the anticipated results, a well-informed searcher can take additional steps to locate the document and proactively work with the filing office to have the index corrected. Sending them back later to check for a missing lien will only add to your cycle time.
Your searcher wants to do a good job for you. By sharing what you already know, you arm him or her with the information they need to perform thorough research and investigate inconsistencies in the data on your behalf.
As the U.S struggles toward economic recovery, most local governments are really feeling the pinch. State and county-level governments face overwhelming budget shortfalls, dramatically impacting their ability to deliver timely public services. These budget woes often translate into slowed turn around times for public record information requests and document filings. In this blog post, we will discuss three strategies for getting your hands on the documents you need in time for your scheduled closing date.
Don’t Wait to Initiate
When processing times are slow, it is critical to initiate your public records requests as soon as possible. Many lenders order copies of corporate documents or lien searches near the end of their funding cycle as a means to confirm what a prospect has already disclosed. To avoid delayed closings, consider moving this step closer to the beginning of your discovery process, thereby allowing the filing office more time to fulfill your request.
Put a Rush on it
Many filing offices offer search, retrieval and filing services on an expedited basis. You can work with your service provider or contact the filing office directly to learn if the documents you need are available on a rush. Keep in mind that expedited services come at a premium cost, so you will want to inquire about additional fees before initiating your request.
Look to Online Solutions
For some transactions, you may be able to eliminate working with the filing office altogether by partnering with a service company that offers an online search and filing tool. Many companies maintain private databases for UCC and lien searches that deliver instantaneous search results and document images. These online systems often include a UCC filing component that can file your documents via electronic transmission to the filing office for quicker turn around.
The general public and even private service companies are at the mercy of the local filing offices. These offices cannot process work any more quickly than their volume of work and staffing levels will allow. Incorporating some or all of the suggestions discussed here though, can ensure you get the best turn around time available for the documents you require.
In a recent blog post titled, “Ordering a Civil Litigation Search: 5 Pieces of Information Your Searcher Will Need From You,” we mentioned that when ordering a litigation search, your searcher will be expecting you to provide direction as to which specific court they should visit. Several readers responded, saying that they could use some help figuring out what court to search. First Corporate Solutions cannot offer any legal advice in terms of telling customers where to perform their searches, but we can provide some basic information about common customer searching practices and what types of cases are found at certain courts.
When performing civil litigation searches as part of a pre-funding due diligence investigation, we find that most customers elect to search the State Court of General Jurisdiction. For a more comprehensive search effort, many will also add a search of the U.S. District Court.
State Court of General Jurisdiction
These courts are the primary trial courts of the state court system. Each state manages its state court system differently and this level of court goes by many different names such as: Superior Court, Court of Common Pleas, Circuit Court etc.
A State Court of General Jurisdiction hears a variety of case types including: most criminal cases, personal injury matters and contract cases (uscourts.gov).
U.S. District Court
These are the trial courts of the federal court system. There are ninety-four U.S. District courts throughout the nation and various U.S. territories. Every state has at least one U.S. District Court, some having as many as four.
Many different types of cases can be found at a U.S District Court including: civil actions that cross state lines and criminal cases filed by the United States (uscourts.gov)
Litigation searching can be complex. It is best practice to speak with your firm’s risk management department or your attorney before ordering a litigation search to determine what searches will yield the greatest benefit for your transaction.
To learn more about the U.S. Court system, visit their website www.uscourts.gov.
One of the challenges associated with the filing and retrieval of corporate documents is the lack of consistency in state filing office terminology. This state-to-state variation makes it difficult to be certain you are interacting with the correct documents and using the appropriate language; driving many lenders, paralegals and entrepreneurs to work with a private service company to guide their corporate transactions. In this week’s blog post, we will identify and define four concepts in corporate work that tend to cause confusion and provide several common name variations for each.
- Definition: A state-issued document verifying that a registered entity is authorized to do business in a given jurisdiction. The document certifies that the named entity has complied with certain statutory requirements imposed by that state.
Common Names: Certificate of Status, Status Certificate, Certificate of Good Standing, Good Standing Certificate, Certificate of Existence - Definition: A person or entity designated to receive legal and tax documents on behalf of a registered business. This is the person that would receive service of process should the business be involved in a legal action.
Common Names: Registered Agent, Resident Agent, Statutory Agent, Agent for Service of Process - Definition: An entity’s mandatory annual or biennial filing. Required information varies by state, but often includes entity’s address, officer and director information, registered agent for service of process and the number of authorized shares issued.
Common Names: Statement of Officers, Statement of Information, Annual Report, Annual List - Definition: A name under which a person, partnership, corporation etc conducts business that is not the legal name of the entity as listed on their formal organizing paperwork.
Common Names: Assumed Name, Fictitious Business Name, DBA Name, Doing Business As
Please keep in mind that the terms discussed herein could have a slightly different meaning and serve a somewhat different purpose depending on the state. This document is intended only as resource to help you become familiar with few common synonymous corporate terms. When in doubt you can always speak with your corporate service provider or contact the state filing office directly for clarification.
