What Is UCC Filing?

UCC is an acronym for a set of rules called the Universal Commercial Code. UCC rules, which every state has adopted in part or in full, work to standardize business and commercial transactions in the United States. Article 9 of the code deals with secured transactions and more specifically, UCC filings.

Function and Purpose

When a consumer or a business secures a loan using personal or business property other than real estate as collateral, the lender attaches a lien and establishes legal interest in the collateral by filing a UCC-1 financing statement with the Office of the Secretary of State in the borrower's state. This gives the lender first priority rights to claim or seize the collateral if the borrower defaults on the loan or files bankruptcy.

Loans that require UCC filings include those for consumer goods, commercial equipment, farm equipment and products, fixtures such as a storage shed and manufactured homes. Real estate, motor vehicles, all-terrain vehicles and motorboats are not subject to UCC filing rules.

A UCC-1 filing remains in effect for five years. If the loan is still active, the lender must file a UCC-3 Filing Statement Amendment at least six months before the expiration date to continue the filing or it lapses automatically. When the loan is paid in full, the lender files a UCC-3 Filing Statement Amendment to terminate the lien and the collateral is then free and clear.

Tip

A lender may correct or provide additional information to a previously filed UCC-1 by filing a UCC-5 Correction Statement.

How It Works

As an example, say that a lender gives you a loan to construct a storage shed on your property. The lender then files a UCC-1 financing statement with the secretary of state listing you as the debtor and the storage shed as collateral. If you decide to sell the storage shed before paying the loan, a prospective buyer can find out there is a creditor's lien on the shed by searching the UCC filings. In the same way, if you attempt to use the shed as collateral for a new loan, the lender can learn the shed has a lien attached to it by searching UCC filings.

Tip

UCC filings are public record. Every state has a free UCC search tool that lenders and potential buyers can use to find out if an item has a lien attached to it.



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