When recently presented with these questions, we found the answers from Darrell Pierce of the law firm Dykema Gossett PLLC , reprinted below:
“Article 9 recognizes that secured parties may choose to alter their relative priority by agreement. There is no need to file notices of subordination to make them legally effective, or to maintain the perfected status of either security party. However, for the purpose of informing searchers that a party who appears to be subordinate in fact has priority and superior rights, many secured parties like to indicate that a subordination agreement is in place in the public record. There are good and valid reasons to do this, and it is usually done by adding a subordination statement in the collateral box/field or in the Miscellaneous box/field, either on a UCC1 or a UCC3. It might also be done on an information statement.
I believe that, from the filing office’s perspective, the additional information is benign; maintained as part of the financing statement but not indexed. It does not affect the searchable index or the status of the financing statement in the filing office’s information management system (to use terminology from the Model Administrative Rules).”
– Darrell Pierce, Dykema Gossett PLLC
Why would this happen? One example is a secured party with a perfected security interest who no longer desires to extend credit to a debtor but nevertheless realizes further credit is required for its debtor to fulfill its original debt obligation. Do you know any other situations for which this applies? Share it with us now, we’d love to hear from you on this.
Need to file a UCC with a secured party subordination agreement attached or included? Consider partnering with a public records company which specializes in handling your UCC filings to eliminate rejections and assure jurisdictional acceptance of your filings.