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The Article 9 Rules

TOTAL TRAINING SOLUTIONS

SECURED TRANSACTIONS

. . . with Anne Lolley2

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BACKGROUND

BEFORE ARTICLE 9 AFTER ARTICLE 9

First to get lien wins No filing No uniform rules No uniform terminology Pledge Lien Assignment Mortgage

Public filing system Search for lienholder Get dibbies by perfecting Uniform rules Nationwide terminology Security interest Security agreement Financing statement Perfection

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CREATION

1950s - Need arose for set of nationwide laws

Uniform Law Commission

Best of business laws

Created model code—Uniform Commercial Code

Offered to state legislatures

Passed in each state in 1960s

Now uniform state laws across nation

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UCC, NOT UCCC

UNIFORM COMMERCIAL CODE UNIFORM CONSUMER CREDIT CODE

UCC UCCC

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THE ARTICLES

Article 1 General Provisions Article 2 Sales Article 2A Leases Article 3 Commercial Paper (checks, drafts, promissory notes) Article 4 Bank Deposits and Collections Article 4A Wire Transfers Article 5 Letters of Credit Article 6 Bulk Transfers Article 7 Warehouse Receipts and Other Documents of Title Article 8 Investment Securities Article 9 Secured Transactions

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UNIFORM STATE LAW

Not a federal law (not created by Congress)

Uniform law (passed by legislature of each state)

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ARTICLE 9 BASICS

Deals with secured transactions

Personal property only MORTGAGES

Provides system for establishing priority

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ARTICLE 9 CATEGORIES

CATEGORY PROPERTY

DOCUMENTS Warehouse Receipts

INSTRUMENTS Paper Certificates of Deposits

GOODS Equipment Fixtures Farm products Manufactured homesInventory Computer programsConsumer goods

GENERAL INTANGIBLES Stuff in no other category

ACCOUNTS The right to payment

DEPOSIT ACCOUNTS Checking accounts Savings accounts Uncertificated certificates of deposit

INVESTMENT PROPERTY Stocks, bonds, mutual funds

NON-CONSUMER ONLY

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THE “DEBTOR”

OWNER OF

COLLATERAL BORROWER

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ARTICLE 9 EXEMPTIONS

Interests in real estate—rents and leasesWages Insurance policies Judgment rights (most) Consumer deposit accounts Ships

ALSONOT COVERED

• LANDLORDS’ LIENS

• SETOFF

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NON-ARTICLE 9 LIENS

Terminology Assignment Lien Pledge Mortgage

Forms – “Assignment” instead of “security agreement” Perfection/filing – No filing/no financing statement Priority – First lender to get lien

NO “SECURITY INTEREST”

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THREE STEPS UNDER ARTICLE 9

1. SEARCH

2. CONTRACT – Security Agreement

3. PERFECT – Financing Statement (UCC-1)

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JOINTLY-OWNED COLLATERAL

GENERAL RULE

Both owners must sign

security agreement

REG BPROMISSORY NOTE

PAPER CERTIFICATES OF DEPOSIT

and/or rule

CARS

Both owners must sign security agreement

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THE USUAL RULE

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POSSESSION

FILING

OR

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SPECIAL RULES

TYPE OF COLLATERAL PERFECTION RULE

Money Possession

Instruments Possession

Deposit accounts (non-consumer) Control

Titled vehicle (not held as inventory) Note lien on title

Titled manufactured home Note lien on title

Purchase-money consumer goods Automatically perfected

Investment property Control

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WHERE TO FILE – BASIC RULES

TYPE OF COLLATERAL WHERE TO FILE

Fixtures Local

Timber To Be Cut Local

Extracted Oil, Gas, Minerals Local

All Other Collateral State

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WHERE TO FILE – SEVERAL STATES

FILE IN THE STATE WHERE THE DEBTOR

IS LOCATED

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MEANING OF “ORGANIZATION”

CorporationsPartnerships

Limited liability companiesUnincorporated associations

GovernmentsEstates

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WHERE TO FILE – SEVERAL STATES

TYPE OF DEBTOR WHERE DEBTOR IS “LOCATED”

Individual / Sole Proprietorship Principal residence

Registered Organization• Corporation• LLC• Limited partnership• Limited liability partnership

Birth place – where articles filed

Unregistered Organization – One• General Partnership

Place of business

Unregistered Organization – More• General Partnership

Chief executive office

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CORRECT DEBTOR NAMEDEBTOR ENTITY CORRECT NAME

Individual Alternative A / Alternative B

Sole proprietorship Legal name of sole proprietor

Registered organization Public record name

Non-registered organization - name Organizational name

Non-registered organization – no name Names of partners/members

Estate Decedent’s name (indicate estate)

Trusts Trust name

Spouses engaged in business Individual spouses / business

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CORRECT DEBTOR NAME

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THIRD PARTY OWNS COLLATERAL

COLLATERAL OWNED BY SOMEONE OTHER THAN BORROWER

FILE IN NAME OF OWNER(NOT THE BORROWER)

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AUTHORIZATION TO FILE

Cannot file financing statement without authorization

Signing security agreement = automatic authorization

Extends only to listed collateral

Other cases – get separate authorization

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FIVE-YEAR LAPSE

Financing statement will automatically lapse five years from filing date . . .

Avoid lapse by filing continuation statement

within six months prior to lapse date

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FIVE-YEAR LAPSE

Lapse date occurs in five-year increments and is based on original filing date:

Filing date – March 14, 2004Lapse date – March 14, 2009Lapse date – March 14, 2014Lapse date – March 14, 2019

Date of continuation statement does not change lapse date.

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DEBTOR MOVES - NEW STATE

Original financing statement will lapse four months after move . . .

Prevent lapse by filing in new state

within that four-month period

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DEBTOR MOVES – SAME STATE

Existing financing statement still effective . . .

Correct address when financing statement is continued or amended

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AMENDING FINANCING STATEMENT

Amendment must be authorized by debtor

Authorization is automatic if “contemplated”CorrectionsClarifications

Otherwise, authorization required: Sign amendment Sign new security agreement Sign authorization form or letter

EXAMPLE

NEW COLLATERAL

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NAME/STRUCTURE CHANGE

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Common examples:

Debtor marries and changes name Sole proprietorship incorporates

NAME/STRUCTURE CHANGE

To apply rule, determine if change is “seriously misleading” . . .

SERIOUSLY MISLEADING

SEARCH UNDER NEW NAME WILL NOT REVEAL

FINANCING STATEMENTS FILED UNDER OLD NAME

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SERIOUSLY MISLEADING

OLD NAME NEW NAME

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Mary Jane Smith Mary Jane Dolzlowski

NOT SERIOUSLY MISLEADING

OLD NAME NEW NAME

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James Ward

dba Westside Auto

James Ward, Inc.

dba Westside Auto

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NAME/STRUCTURE CHANGE

NOT SERIOUSLY MISLEADING SERIOUSLY MISLEADING

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EXISTING FINANCING STATEMENT IS VALID

EXISTING FINANCING STATEMENT WILL COVER: Existing collateral

Collateral received by debtor within next four months

AMEND NAME AT NEXT CONTINUATION OR

AMENDMENTTO COVER COLLATERAL

RECEIVED AFTER FOUR-MONTHS, FILE AMENDMENT WITHIN

THE FOUR-MONTH PERIOD

CREDITOR NAME CHANGE

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No amendment required as long as address remains the same

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CREDITOR RESPONSIBILITIES

CONSUMER GOODS OTHER

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File termination statement

1 month after payment20 days after demand

Send termination statement to debtor

20 days after demandFIRST

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DEBTOR-FILED STATMENT

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Debtor can file termination statement

Clearly marked as “debtor-filed”

Only valid if lender was required to terminate and failed to do so

LIEN ON CERTIFICATE OF TITLE

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Check state law!

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FINANCING STATEMENT

SUPERGENERICALL ASSETS

ALL PERSONAL PROPERTY

SECURITY AGREEMENT CONSUMER GOODS

SPECIFIC

DESCRIBING COLLATERAL

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SECURITY AGREEMENT GENERAL

REASONABLY SPECIFIC

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KEY RULES

ONE CREDITOR UNPERFECTED BOTH CREDITORS PERFECTED

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PERFECTEDCREDITOR HAS

PRIORITY

FIRST CREDITOR

TO PERFECT HAS PRIORITY

PERFECTION GOVERNS

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NOV2006

AUG2007

JAN2008

SMART CREDITOR

PERFECTS

SMART CREDITOR

LENDS

ACMECREDITOR

LENDS &

PERFECTS

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STATUTORY LIENS

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STATUTE MAY GIVE LIEN PRIORITY OVER CONFLICTING ARTICLE 9 SECURITY INTEREST . . .

Pasturing liens

Feeder liens

Repairman’s liens

Seeding/baling liens

Threshing liens

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PURCHASE-MONEY SECURITY INTERESTS

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OCCURS WHEN PROCEEDS OF LOAN

ARE USED TO BUY THE COLLATERAL

CREDITOR CAN GET PRIORITY OVER EXISTING SECURITY INTERESTS IN

SAME COLLATERAL

FIXTURES

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FOUR RULES

SEE PAGE 17 IN BOOKLET

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IRS LIENS

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FIRST-TO-FILE RULE

If creditor files its financing statement before IRS files its Notice of Tax Lien, creditor has priority.

SPECIAL RULES

Purchase-money security interests After-acquired property Future advances

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PMSI EXAMPLE

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Creditor A has a perfected security interest in “all inventory now-owned or hereafter-acquired”

Later, Creditor B lends money to buy inventory, and takes a security interest in that inventory

Creditor B (purchase-money creditor) can get priority over Creditor A’s security interest in after-acquired inventory by jumping through the PMSI hoops

THE HOOPS

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COLLATERAL REQUIREMENTS NOTIFICATION DETAILS

Inventory • Perfect before possession• Written notification

• State PMSI• Describe inventory by item/type

Livestock • Perfect before possession• Written notification

• State PMSI• Describe livestock• Within 6 months prior to possession

All other • Perfect within 20 days after possession

• None

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THE COLLATERAL CHART

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THANK YOU!

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THANK YOU!

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TTS800‐831‐0678info@TTStrain.comCUWebinars.com

2015 CUWebinarsNovember 9th - Common Business Entities -

What You Need to Know

December 3rd - Lending Compliance 101

December 9th - Opening Business Accounts –The Big Four

December 15th - Completing the SAR: The Narrative, The Subjects and The Crimes

December 16th - Developments in Federal Wage and Hour Law

Anne Lolley877‐778‐5192 x4alolley@cox.net