To welcome new readers to the FCS blog, we have been running a “Best of” series since mid-April. This week’s article is the last in our series. Be sure to look back over our previous few posts to read articles on some of our most popular topics!
Two Important Reasons to Include Terminated Filings in Your UCC Search Efforts
One of the more common special requests we get from customers is to omit terminated filings from their UCC search results. When customers request that we leave terminated filings off our search reports, it usually stems from a misconception that once a termination statement is filed the financing statement no longer matters in terms of determining priority of claims. Not so fast!
There are two very important reasons to include terminated filings in your UCC search efforts.
Multiple Secured Parties
Keep in mind that a UCC Financing Statement may include more than one Secured Party. In these cases, if a single Secured Party files a Termination it can mean two very different things. First, because a single Secured Party can file a Termination Statement on behalf of all secured parties, it could effectively terminate the entire claim against the collateral. Or secondly, and this is where it gets interesting, it could indicate that the filing party terminated only their own interest in the collateral, in which case the Financing Statement would remain fully effective for all other Secured Parties of record.
There is no distinction between these two scenarios within the public record, so searchers must be diligent and contact the Secured Party to ascertain the scope of their Termination filing.
Unauthorized Terminations
A Termination Statement is only effective if a party with the authority to do so files it. In most cases, the Uniform Commercial Code grants termination authority to the Secured Party (note debtor authorized terminations are effective in certain situations). Sometimes a party other than the Secured Party of record will file a Termination Statement. This could happen for a variety for reasons: perhaps a UCC filer put the wrong UCC1 file number on their document and terminated the filing in error or maybe the debtor filed an unauthorized termination in an effort to unencumber the collateral. According to the prevailing interpretation of Revised Article 9, whatever the reason for its filing, an unauthorized Termination does not affect the effectiveness of a UCC Financing Statement.
There is no way to tell from looking at a UCC Termination Statement or a UCC search result whether the Termination was filed with proper authority. Again, the searcher will need to follow up with the Secured Party for confirmation.
For these reasons, it is risky for a UCC searcher to disregard a UCC record simply because a termination reflects on the index. For any UCC Financing Statements that reflect a termination but are not yet expired, be sure to perform adequate follow up to determine the true status of the claim.
To welcome new readers to the FCS blog, we will be running a “Best of” series over the next several weeks. Check back each week between now and the end of May to read another of our most popular blog posts!
3 Tips for Avoiding Rejection of Articles of Incorporation
In most states, filing articles of incorporation (or organization) is a pretty straightforward process; document filers simply fill out a form, collect a signature and send the document off to be filed. Nevertheless, corporate filings often get rejected and it is usually for simple errors. What follows is a brief overview of three easy tips to help guard against rejection of your business formation filings.
Check Name Availability
A new business must have a unique name. If your chosen name is the same or deceptively similar to an existing entity, the state filing office will reject your document. To assist you in choosing a unique name, most states will allow you to check the availability of the name you wish to use prior to submitting your paperwork. Then, if the name is available, you can reserve it for your exclusive use. Please refer to our previous blog post, “Why Reserve your Business Name?” for more information on name reservations.
Aim to Meet the Minimum Requirements
It is a good strategy to aim to satisfy the minimum requirements for filing formation documents, without elaborating or providing additional information. In some cases, providing too much information can be a cause for rejection. For example, while some states require officer and director information to be included in the articles, others will reject for its inclusion on the basis that the proper way to communicate officers and directors is on the statement of information or annual report form.
Don’t Get Too Creative
If the state provides a fillable form for the type of document your need to file, read the instructions carefully and fill out the state’s form. For some filing types though, there is no special form; some require a filer to create their own formation document according to certain specifications. In these cases, look to the state’s website for a sample of a drafted document. Don’t get too creative here. Whenever possible, draft your document using the same verbiage as the sample as many states have required statements that must be included verbatim to avoid rejection.
First Corporate Solutions customers work with a designated Account Manager with expertise in the filing of business entity documents. Our filing experts can provide you with the appropriate form or sample document and offer guidance on subsequent filing requirements. Contact us today to place your order at 800.406.1577 or info@ficoso.com.
Delaware UCC Search Options
To welcome new readers to the FCS blog, we will be running a “Best of” series over the next several weeks. Check back each week between now and the end of May to read another of our most popular blog posts!
Delaware UCC Search Options
It is important to have a good working knowledge of a state’s search logic prior to ordering or performing UCC searches in that jurisdiction. With so many businesses organizing in the State of Delaware, it has also become a hotbed of UCC searching activity and in this blog post, we offer some information on performing UCC searches there.
Delaware Certified Searches
The Delaware Secretary of State provides certified searches only; there is no plain or uncertified option available from the state. With the exception of a few noise words, Delaware adheres to exact name search logic, meaning no name variations will be included on the search report. Due to the restrictive search logic used to generate a certified listing in Delaware, a searcher has to order a separate certified search for each name variation they can think of and those fees can add up rather quickly.
Delaware Online Searches
UCC searchers looking for a more inclusive and cost-effective search solution in Delaware often look to an online search system that will reveal name variations. The problem with online searching for Delaware is that the state does not make their UCC data available for purchase in bulk. Therefore, in order to offer Delaware searching on their private search system, a service company must purchase Delaware UCC data from a third party source rather than from the state filing office directly.
Third party databases can pose some real problems for UCC searchers because they are built through data collection efforts; essentially, the third party buys copies of filed UCC records and transcribes the data to recreate the state’s index. This transcription process opens the door for errors to be introduced into the data including misspelled party names, erroneous file dates, and sometimes we even see documents left off the recreated index entirely. Ultimately, these data entry errors compromise the integrity of the search result and translate into increased risk for any lender who relies on them to make a funding decision.
The FCS Solution
First Corporate Solutions has developed an innovative solution to help overcome some of the common problems associated with UCC searching in Delaware. Our Delaware UCC search solutions follow a two-step process. First, customers search our online data using flexible, broad-based search logic to generate a preliminary report that uncovers name variations. Then they select from three follow up search options that supplement the online data to ensure the accuracy and completeness of reported liens.
Our follow up search options complement the preliminary online listing to generate the most complete and most accurate DE UCC search available anywhere. Visit our website at http://www.ficoso.com/delaware-ucc-solutions.aspx or call a customer service representative at 800.406.1577 for more information on flexible Delaware search options from First Corporate Solutions.
To welcome new readers to the FCS blog, we will be running a “Best of” series over the next several weeks. Check back each week between now and the end of May to read another of our most popular blog posts!
Refer to Organizing Paperwork for Legal Name of a Business Debtor
According to the Uniform Commercial Code, a UCC Financing Statement is only effective if it gets the debtor name right. A UCC Financing Statement that fails to properly identify the debtor by their legal name will not offer the secured party priority status to collect should the debtor default or file for bankruptcy.
The Code goes on to say that for registered business debtors, the name that should appear on a UCC Financing Statement is the name that appears in the public record in the state where the business is organized. The prevailing opinion among UCC scholars is that, in this context, “public record” means a business’s formal organizing paperwork such as articles of incorporation/organization or partnership agreement.
These days, states filing offices and many private service companies, are making business entity data available online. As a result, a trend has emerged where we find UCC filers looking to an online business entity database to determine an entity’s legal name. Here on the First Corporate Solutions Blog, we want to take a quick moment to emphasize that it really is best practice to view the actual, organic formation documents (including any related amendments or mergers), rather than relying on an online database to determine the legal name of a business debtor.
On the surface, an online business entity database may seem like a low cost alternative to obtaining copies of formation documents, but in fact, trusting online business data can pose a real threat to a secured party’s perfection. In an online database, words may have been abbreviated or typographical errors committed that would cause a secured party to put the wrong name on their UCC Financing Statement, setting them up for a potential future loss should the secured party ever have to fend off a challenge from a competing creditor.
In many cases, you can get a copy of a company’s organizing paperwork from your applicant, but for those times when they need to order copies of a company’s formation documents, First Corporate Solutions offers affordable, nationwide retrieval of business documents. Contact us today to place your order at 800.406.1577 or info@ficoso.com.
Omit “dba” notation from UCC Filings
To welcome new readers to the FCS blog, we will be running a “Best of” series over the next several weeks. Check back each week between now and the end of May to read another of our most popular blog posts!
Omit “dba” notation from UCC Filings
A UCC Financing Statement must properly identify the debtor in order for the UCC to perfect a security interest and provide priority protection for the secured party. To satisfy this requirement, a secured party must complete their Financing Statement using the debtor’s legal name.
In general, secured parties understand the importance of properly naming the debtor on their UCC Financing Statements and try hard to comply. Sometimes though, they try a little too hard and include additional information, such as “dba” names (ex. ABC Trucking, Inc. dba Truck World) in an attempt to identify their debtor more clearly.
By structuring their debtor names to include a trade name, secured parties are actually failing to file under the entities legal name. Every entity has a single legal name, which is the name listed on their organizing paperwork (articles of Incorporation/Organization etc.) A trade name is merely another name under which the entity may do business, sort of like a business alias.
Under the Uniform Commercial Code, filing under a trade name alone is not sufficient to perfect a security interest; a UCC Financing Statement must list the legal name. A secured party is free to file under the legal name and the trade name, if they wish. A better way to file in these cases is to list the entity’s legal name as the primary debtor and list the trade name as an additional debtor, omitting the “dba” notation from the beginning of the name (ex. Debtor 1: ABC Trucking, Inc., Debtor 2: Truck World)
Every UCC filing submitted through the First Corporate Solutions online UCC filing and portfolio management system, File n’ Track, undergoes a rigorous quality review to check for potential filing mistakes including the inclusion of the dba notation. Contact us today for a free system demo! 800.406.1577 | info@ficoso.com
Why Name Variations Matter in UCC Searching
To welcome new readers to the FCS blog, we will be running a “Best of” series over the next several weeks. Check back each week between now and the end of May to read another of our most popular blog posts!
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 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.
The FCS online search system offers broad-based name searching featured including a wildcard character and stem/truncated search logic. We designed these featured specifically to help searchers locate critical filings that might be missed using an exact name search methodology. Contact us today at 800.406.1577 or info@ficoso.com to schedule a free online system demonstration!
To welcome new readers to the FCS blog, we will be running a “Best of” series over the next several weeks. Check back each week between now and the end of May to read another of our most popular blog posts!
Best of the FCS Blog: Importance of County-Level Lien Monitoring
Once a creditor has filed a UCC Financing Statement they will want to do all they can to maintain their priority position throughout the life of the loan. Lien monitoring 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. Monitoring offers an easy and affordable way for a secured party to keep an eye on other lien-holder activity against their debtor that may jeopardize their ability to collect.
Some of the most common monitoring programs on the market offer state-level lien searches only. Service providers can offer state-level only monitoring programs for a very small fee, which makes them attractive to many cost-conscious lenders. In many cases though, state-level only monitoring does little to protect creditors from priority challenges – especially when dealing with individual, rather than business debtors.
Many creditors consider Federal Tax Liens the most urgent of all liens because, in certain situations, they can prime a perfected UCC. When evaluating lien monitoring programs, it is important to recognize that only 22 states maintain Federal Tax Lien records at the state level filing office, of those, only 7 include Federal Tax Lien records for individual debtors. In these jurisdictions, only a search of the county index will uncover Federal Tax Liens against an individual debtor.
First Corporate Solutions’ Account Monitoring program includes expert searches of both the state and county filing office records for your complete coverage and peace of mind. Contact us today at 800.406.1577 or visit our website here for more information.
