ucc assignment definition

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Ucc assignment and federal uspto assignment: one word, two meanings.

Fairly frequently, I am asked the following question:

“Do assignment filings made with the USPTO have the same effect as assignment filings made under Article 9 of the Uniform Commercial Code?”

While in certain situations the answer is yes, the more helpful and short answer is no . UCC assignments are typically filed centrally or locally in each state, IP filings are made at the federal level. Moreover, the word ‘assignment’ may have a different meaning. 

I’ll explore some of the similarities and differences between Article 9 assignments and assignments made with the U.S. Patent and Trademark Office (USPTO) to explain why.

What is an Assignment?

Let's start with setting the scope of what we mean by the term ‘assignment’. When used with respect to property, particularly in the legal world, assignment is defined as “the act of transferring an interest in property or some right (such as contract benefits) to another”.

UCC Assignment

Article 9 of the  Uniform Commercial Code (UCC)  allows a secured party (SP) to file assignments via UCC3 amendments. In the UCC Article 9 world, an assignment (UCC3) is linked to the initial financing statement (UCC1) in the public record so that the relationship between the two filings is clear. Both filings, the UCC1 and UCC3, are indexed together so that a search of the public record by a debtor name will reveal both the financing statement and the amendment in one search.

There are several types of UCC assignment filings a secured party may make with the appropriate central filing office and/or local filing office: 

• The secured party (assignor) may assign all of its rights to another party (assignee). (This is considered a full assignment.)
• The secured party may assign the rights to some portion or percentage of all the collateral covered by the initial UCC financing statement to another party. (A partial assignment.)
• The secured party may assign the rights of the 100% interest in a  portion  of the collateral to another party. (Also a partial assignment.)

USPTO Assignment

Like the rights to security interests that may be fully or partially assigned under the UCC,  intellectual property (IP) , such as patents and trademarks, may also have ownership rights transferred in full or in part on the public record at the USPTO. In both cases, when an IP or UCC assignment filing is made, the filings end up in the public record so that searchers can find them.

At the USPTO, however, assignments and other changes are not directly linked on one index when searching by name, which is ordinarily how due diligence searching is conducted. A name search of the USPTO index will not yield one set of complete results containing both trademark applications and registrations and all trademark assignment filings. Separate searches are needed in different sections of the USPTO website. Once those searches are completed, a searcher may need to manually review the results in order to determine if there is a parent-child relationship between the records.

This is also important to note because an IP assignment can be filed before a patent is granted or a trademark application and registration appears on the USPTO records, because it might still be going through the review process at the USPTO.

On top of that, some filings categorized as ‘assignments’ at the USPTO, because they are indexed in the assignments database, are not assignments by definition. In other words,  a filing on the USPTO assignment database may NOT be transferring rights in full or in part . This means that search results will include actual assignments and other records that are not assignments in the true sense of the rights of transfer. 

USPTO Assignment Recordation Examples

So, what other filings are included as ‘assignments’ at the USPTO that are not really assignments? As an example, let’s say that the owner of IP changes their name while retaining ownership in their IP. Searching either of the assignment indexes at the USPTO may include name change results. Technically, this is not an assignment by definition – there was no transfer of rights – but the name change is filed on the assignment index. A security interest in IP is another example of a type of lien filing found on the USPTO assignments database but is not, by definition, an assignment.

Adding to the confusion, IP filers can choose to file using the option of ‘Other’ and can enter a conveyance type not already provided as a standard selection, which means that almost anything can be included on the ‘assignment’ records at the USPTO. 

A Rule of Thumb for UCC and IP Assignments

The main point to take away from this discussion is that while assignments of UCCs are always assignments, assignments of IP are not as clear. Assignments of UCCs are always linked to the initial financing statements and are usually reflected in a single search, but assignments of IP filings are found on a different USPTO database from the trademark application and registration database, and patent grant and published pending patent databases, which all require separate searches (and thus, yield separate search results) on the USPTO website. It is necessary for the searcher to match up IP assignments to the parent record, if there is a parent record available.

The terminology may appear the same, but the meaning – and the search processes – for USPTO assignments and UCC assignments are completely different.

For insight on how intellectual property due diligence dovetails with more traditional types of searches, access our free webinar below:

This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.

Topics: Article 9 Filing, Searching and Due Diligence , UCC , Intellectual Property Due Diligence

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Secured Party Has Same Rights as Assignee Under UCC § 9-406

On November 22, 2022, the Court of Appeals issued a decision in Worthy Lending LLC v. New Style Contrs., Inc. , 2022 NY Slip Op. 06631 , holding that a secured party has the same rights as an assignee under UCC § 9-406, explaining:

Section 9-607 (a) (3), entitled “Collection and Enforcement by Secured Party,” provides as follows: If so agreed, and in any event after default, a secured party may enforce the obligations of an account debtor or other person obligated on collateral and exercise the rights of the debtor with respect to the obligation of the account debtor or other person obligated on collateral to make payment or otherwise render performance to the debtor, and with respect to any property that secures the obligations of the account debtor or other person obligated on the collateral. An account debtor who receives a secured creditor’s notice asserting its right to receive payment directly can pay the secured creditor and receive a complete discharge (UCC 9-406 [a]) or, if in doubt, can seek proof from the secured creditor that it possesses a valid assignment and withhold payment in the interim (UCC 9-406 [c]). Here, Worthy is the “secured party,” with the authority to enforce the rights of its debtor (Checkmate) to collect on the obligations of the account debtor (New Style). The lower courts held that subsection 9-607 (e) bars Worthy from using the mechanism provided for in section 9-607, by providing that this section does not determine whether an account debtor, bank, or other person obligated on collateral owes a duty to a secured party. However, the plain language of subsection (e) merely states that UCC 9-607 does not itself determine whether an account debtor owes a duty to a secured party. The agreement between Worthy and Checkmate grants Worthy the right to direct Checkmate’s debtors to pay Worthy directly, and bars Checkmate from interfering with any such direction if given. Subsection (e) of 9-607 does not even imply, much less state, that parties cannot contractually assume duties concerning the right of a secured party to enforce the rights of a debtor as against account debtors. Indeed, section 9-607 (a) (3) expressly provides that “in any event after default,” a secured party may obtain collateral directly from an account debtor, and the secured party and debtor may agree that the secured party may do so by agreement, without regard to default—which they did here. Consistent with the statute’s text, the official comments of the UCC Permanent Editorial Board (PEB)[FN1] issued in 2020 explain that UCC 9-607 “establishes only the baseline rights of the secured party vis-a-vis the debtor” and permits “the secured party to enforce and collect [from an account debtor] after default or earlier if so agreed” (UCC 9-607, Comment 6; see also PEB Commentary No. 21 at 4 n 21). New Style contends that UCC 9-406 allows only assignors—not holders of security interests—to rely on the payment-redirection provisions contained in that section. UCC Section 9-406 (a) states: An account debtor on an account, chattel paper, or a payment intangible may discharge its obligation by paying the assignor until, but not after, the account debtor receives a notification, authenticated by the assignor or the assignee, that the amount due or to become due has been assigned and that payment is to be made to the assignee. After receipt of the notification, the account debtor may discharge its obligation by paying the assignee and may not discharge the obligation by paying the assignor. The definition of “security interest” in the UCC itself does not distinguish between a security interest and an assignment and the definition section contains no separate definition of “assignment,” “assignor” or “assignee.” The commentary makes clear that a security interest is treated as an assignment. As the commentary explains, treating assignments and security interests identically promotes efficient dealings between the parties—they do not have to try to determine whether the interest is an assignment or a security interest by parsing contractual language. New York case law, state and federal, is consistent. The PEB recently amended the official UCC comments to clarify what has long been the case: the term assignment, as used in UCC article 9, refers to both an outright transfer of ownership and a transfer of an interest to secure an obligation. (Internal quotations and citations omitted).

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The ucc today, article 1, general provisions.

Uniform Commercial Code Article 1 contains definitions and general provisions applicable as default rules to transactions covered under other articles of the UCC. Article 1 was last revised in 2001, with a few minor amendments since then to harmonize with recent revisions of other UCC articles. View Article 1, General Provisions

Article 2, Sales

Uniform Commercial Code Article 2 governs the sale of goods. It was part of the original Uniform Commercial Code approved in 1951. Article 2 represented a revision and modernization of the Uniform Sales Act, which was originally approved by the National Conference of Commissioners on Uniform State Laws in 1906. The Uniform Law Commission and American Law Institute approved a revised Article 2 in 2003 that was not adopted in any state, and was subsequently withdrawn by both organizations in 2011. Thus the 1951 version of Article 2 is the most recent official version. View Article 2, Sales

Article 2A, Leases

Uniform Commercial Code Article 2A governs leases of personal property. It was first added to the Uniform Commercial Code in 1987 and amended in 1990. A revision was approved by the Uniform Law Commission and the American Law Institute in 2003, but was not adopted in any jurisdiction and subsequently withdrawn by both organizations in 2011. Thus, the 1987 version of Article 2A, as amended in 1990, remains the official text. View Article 2A, Leases

Article 3, Negotiable Instruments

Uniform Commercial Code Article 3 governs negotiable instruments: drafts (including checks) and notes representing a promise to pay a sum of money, and that have independent value because they are negotiable. An instrument is negotiable if it can be transferred to another person and remain enforceable against the person who originally made the promise to pay. The substance of Article 3 has its roots in the Negotiable Instrument Law first approved by the National Conference of Commissioners on Uniform State Laws in 1896. That early uniform law was revised and incorporated into the original version of the UCC in 1951, and a further revision was approved in 1990. Finally, a set of amendments to UCC Articles 3 and 4 was approved in 2002. View Article 3, Negotiable Instruments

Article 4, Bank Deposits and Collections

Uniform Commercial Code Article 4 governs bank deposits and collections, providing rules for check processing and automated inter-bank collections. Article 4 was completely revised in 1990 and amended in 2002. View Article 4, Bank Deposits and Collections

2002 Amendments to Article 3, Negotiable Instruments and Article 4, Bank Deposits

These 2002 amendments to Uniform Commercial Code Articles 3 and 4 update provisions dealing with payment by checks and other paper instruments to provide essential rules for new technologies and practices in payment systems. View Article 3, Negotiable Instruments and Article 4, Bank Deposits, Amendments to

Article 4A, Funds Transfers

Uniform Commercial Code Article 4A provides a comprehensive body of law on the rights and obligations connected with fund transfers. It was added to the UCC in 1989. View Article 4A, Funds Transfers

2012 Amendments to Article 4A, Funds Transfers

These 2012 Amendments to Section 108 of Uniform Commercial Code Article 4A provide that Article 4A applies to a remittance transfer that is not an electronic funds transfer under the Federal Electronic Funds Transfer Act (EFTA). The amendment was necessary to conform the UCC with the federal law and associated regulations. View Article 4A, Amendments to

Article 5, Letters of Credit

Uniform Commercial Code Article 5 governs letters of credit, which are typically issued by a bank or other financial institution to its business customers in order to facilitate trade. Article 5 was updated in 1995 to address advances in technology and modern business practices. View Article 5, Letters of Credit

Article 6, Bulk Sales

Uniform Commercial Code Article 6 covers bulk sales - a topic many states have determined is obsolete. The original version of Article 6 was withdrawn by the Uniform Law Commission and the American Law Institute in 1989 and replaced with two options for every state to consider: replace Article 6 with a revised version 6, or repeal Article 6 entirely. The ULC recommends repeal, and nearly every state has followed that recommendation. View Article 6, Bulk Sales

Article 7, Documents of Title

Uniform Commercial Code Article 7 covers documents of title for personal property, including warehouse receipts, bills of lading, and other documents typically used for commercial trade. Revised Article 7, approved in 2003, updates the original version to provide a framework for the further development of electronic documents of title, and to update the article in light of state, federal and international legal developments. View Article 7, Documents of Title

Article 8, Investment Securities

Uniform Commercial Code Article 8 provides a modern legal structure for the system of holding securities through intermediaries. The 1994 revision sets forth rules concerning the system through which securities are held, specifying the mechanisms by which ownership and other interests in securities are recorded and changed, and setting out some of the rights and duties of the parties who participate in the securities holding system. View Article 8, Investment Securities

Article 9, Secured Transactions

Uniform Commercial Code Article 9 provides a statutory framework that governs secured transactions--transactions that involve the granting of credit secured by personal property. Each state maintains an office for filing finance statements to publicly disclose security interests in encumbered property. A substantial revision to Article 9 was completed in 1998 and adopted in all states. The article was further amended in 1999, 2000, 2001, and 2010. View Article 9, Secured Transactions

2010 Amendments to Article 9, Secured Transactions

Uniform Commercial Code (UCC) Article 9 governs secured transactions in personal property. The 2010 Amendments to Article 9 modify the existing statute to respond to filing issues and address other matters that have arisen in practice following a decade of experience with the 1998 version. Most significantly, the 2010 Amendments provide greater guidance as to the form of the name of an individual debtor to be provided on a financing statement. View Article 9, Secured Transactions, Amendments to

2018 Amendments to 9-406 and 9-408 of UCC Article 9, Secured Transactions

Amendments to UCC Article 9 Sections 9-406 and 9-408 modify the anti-assignment override provisions, thereby excluding security interests in ownership interests of general partnerships, limited partnerships, and limited liability companies from the override provisions. View UCC Article 9, Secured Transactions, Amendments to 9-406 and 9-408

Article 12 and the 2022 Amendments

The 2022 amendments to the Uniform Commercial Code address emerging technologies, providing updated rules for commercial transactions involving virtual currencies, distributed ledger technologies (including blockchain), artificial intelligence, and other technological developments. The amendments span almost every article of the UCC and add a new Article 12 addressing certain types of digital assets defined as “Controllable Electronic Records” (CERs). The amendments provide new default rules to govern transactions involving these new technologies and clarify the UCC’s applicability to mixed transactions involving both goods and services. The amendments also contain some miscellaneous revisions unrelated to technological developments but providing needed clarification. View UCC, 2022 Amendments to

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UCC 9 406: Everything You Need to Know

Understanding UCC 9 406 and the rest of the Uniform Commercial Code can be somewhat daunting, but it is important for anyone who is conducting sales, either as a buyer or a seller. 3 min read updated on February 01, 2023

Understanding UCC 9 406 and the rest of the Uniform Commercial Code can be somewhat daunting, but it is important for anyone who is conducting sales, either as a buyer or a seller.

Uniform Commercial Code 9-407

Under this code, the secured party on record can release part or all of the collateral that is described in a financial statement that has been filed through a signed statement.

Uniform Commercial Code 9-408

According to UCC Code 9-408, a statement of release is good enough as long as it includes:

·      A description of the released collateral

·      The debtor’s name and address

·      The secured party’s name and address

·      The file number of the financing statement

The statement of release that is signed by anyone outside of the secured party has to have an entirely separate written statement of assignment that includes the signature of the secured party on record. It also must comply with subsection (2) of Section 9-405. This includes paying the fee that is required.

Uniform Commercial Code 9-409

When the filing officer is provided the statement of release, he or she will mark it with the filing date information, including the hour, and will make a note in the margin of the index when filing the financial statement.

Uniform Commercial Code 9-410

There is a uniform fee for filing a statement of release. It will vary among the different states . The fee will also vary depending on the form that is prescribed by the Secretary of State.

Uniform Commercial Code 9-411

This section defines the effect of notification and the discharge of the account debtor . The account debtor on an account or on an intangible payment can discharge any of his obligations when he pays the assignor. This does not occur until after the account debtor gets notified that the amount due is assigned by the assignor or the assignee.

Uniform Commercial Code 9-412

Once receipt of notification has been made, the account debtor can discharge any obligations when paying the assignee. It cannot be discharged by providing payment to the assignor.

What Constitutes Proper Notification?

The first component of proper notification is that the contents of the notice have to be sufficient. According to UCC 9-404(a), the notice will have to be authenticated and convey the facts of the assignment. It will also have to identify the assignee.

Not only must the notice be authenticated, but it also has to include a demand that all payments in the future will have to be made to the assignee directly and will have to identify the rights that are assigned.

The authentication process is typically satisfied when you send the notice using the letterhead of the assignee, or in a form where the name of the assignee is present. There is no set rule on what reasonable identification is, so common sense has to be used.

An assignee does not need to rely solely on the issuance of new invoices that list the address of the assignee or provide notification to the account debtor in regular conversation.

A notice needs to be a in the form of written communication . Special care needs to be taken to ensure the collateral, loan documentation, those party to the documentation, and loan number are identified.

It is best to have as much detail as possible. You also need to remember that, should an account debtor be notified to make a payment of less than the full amount of an installment, he or she may ignore the notice as it is not effective.

An account debtor has to receive the notification. Any notice that is mailed to an address on the loan documentation that is not valid will not be sufficient. It is best to send notice through the U.S. mail using certified mail with a return receipt requested. An email should be sent as well.

Keep in mind that the rules will vary by state. It is essential to fully review all assignee notices.

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Ucc & corporate due diligence resource guide for legal and financial professionals, 5 types of ucc3 change statements.

It’s an amendment filing to an original UCC1 financing statement that changes or adds information to the originally filed UCC1. It’s a filing tool secured parties use to manage their UCC portfolio to maintain their perfected security interests.

Importantly, • the timing of UCC3 recording execution • the accuracy of the data changes or additions • and choosing the correct amendment type can all be critical to maintaining a perfected security interest and the original UCC1 priority position.

Before discussing what a UCC3 is, its various types and how they are utilized, a quick review of UCC1s is in order. UCC1 financing statements are recorded filings which give notice to other creditors of a security interest in specific collateral used to secure debt. They are typically recorded to perfect the security interests of a secured party to prioritize their claim position in the event of a debtor default. UCC1s are subject to the effects of subsequently filed documents, whether those documents attach to the original filing, like a UCC3, or not, like a Federal tax lien.

Some of these subsequently filed documents can prime a perfected security interest, like Federal tax liens.

Others, like UCC3s if not executed according to statute, can cause a secured party to lose effectiveness of their lien, their UCC1, and all claims on any collateral should there be a default.

It’s that last piece that is vitally important about UCC3s: they can affect previously perfected security interests depending on when and where they are recorded, what they do, and how accurate the new data is.

What are the Different Types of UCC3s?

There are five different types of UCC3s.

• Continuations – extends the financing statement effectiveness for another five years;
• Party Amendments – adds or amends debtor or secured party information, such as changes to the legal name or the address
• Collateral Amendments – adds or removes collateral from the collateral description, or restates the collateral description completely
• Assignments – transfers “full” or “partial” rights in the filing from one secured party to another
• Terminations – extinguishes a financing statement prior to its five-year lapse date

Where and how are UCC3s recorded?

UCC3s are recorded in the same jurisdiction as the effective UCC1 it amends. A step by step process on how to execute a UCC3 filing can be found here .

What are some examples of the critical nature of each UCC3 type?

• Continuations – there is a 6 month window prior to the UCC1 5-year lapse date in which a Continuation must be recorded for it to be effective; Continuations are not effective if recorded after the lapse date and the UCC1 lapses and becomes ineffective
• Party Amendments – these amendments often coincide with name changes and/or address changes to business entity documents of the parties involved; these name changes and address changes typically require amendments to the original UCC1 identifying these changes within a specific time frame; address changes that involve a change of state have specific UCC3 filing protocols for secured parties to follow within specific time frames
• Collateral Amendments – partial releases are executed as a DELETE collateral descriptions, a critical aspect of this type of UCC3; a collateral restatement  is a replacement of a prior collateral description, not an addition to that prior description, so a secured party’s security interest in any collateral that is not fully restated in the UCC3 collateral amendment risks becoming unperfected
• Assignments – sometimes a new UCC1 is required instead of an assignment, depending, and failure to recognize what is required in a situation can result in a secured party’s lien becoming ineffective
• Terminations – other parties can terminate a UCC1 besides the secured party; also, RA9 requires no signatures to record terminations; a termination can be recorded by the debtor under certain circumstances; monitoring services are available which alert secured parties to when another party files a termination on one of their UCCs; contact the secured party to verify the effectiveness of a recorded termination.

Once a UCC1 is recorded and a security interest is perfected, a secured party’s focus shifts to maintaining that perfected security interest and managing the UCC1 going forward until it either lapses or is terminated.

UCC3s are a tool which secured parties use to manage that process.

Another important conversation about UCC3s are common mistakes that are made regarding them. Use the button below to download our Free Reference Guide: Top 3 Mistakes on UCC3 Change Statement .

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§ 9-404. RIGHTS ACQUIRED BY ASSIGNEE; CLAIMS AND DEFENSES AGAINST ASSIGNEE.

(a) [Assignee's rights subject to terms, claims, and defenses; exceptions.]

Unless an account debtor has made an enforceable agreement not to assert defenses or claims, and subject to subsections (b) through (e), the rights of an assignee are subject to:

(1) all terms of the agreement between the account debtor and assignor and any defense or claim in recoupment arising from the transaction that gave rise to the contract; and

(2) any other defense or claim of the account debtor against the assignor which accrues before the account debtor receives a notification of the assignment authenticated by the assignor or the assignee.

(b) [Account debtor's claim reduces amount owed to assignee.]

Subject to subsection (c) and except as otherwise provided in subsection (d), the claim of an account debtor against an assignor may be asserted against an assignee under subsection (a) only to reduce the amount the account debtor owes.

(c) [Rule for individual under other law.]

This section is subject to law other than this article which establishes a different rule for an account debtor who is an individual and who incurred the obligation primarily for personal, family, or household purposes.

(d) [Omission of required statement in consumer transaction.]

In a consumer transaction , if a record evidences the account debtor 's obligation, law other than this article requires that the record include a statement to the effect that the account debtor's recovery against an assignee with respect to claims and defenses against the assignor may not exceed amounts paid by the account debtor under the record, and the record does not include such a statement, the extent to which a claim of an account debtor against the assignor may be asserted against an assignee is determined as if the record included such a statement.

(e) [Inapplicability to health-care-insurance receivable.]

This section does not apply to an assignment of a health-care-insurance receivable .

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What Is a UCC-1 Statement?

Understanding ucc-1 statements, types of ucc-1 statements.

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UCC-1 Statement: Definition, Types, and Example

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

Dennis Madamba / Investopedia

A UCC-Uniform Commercial Code-1 statement is a legal notice filed by creditors to publicly declare their rights to potentially obtain the personal properties of debtors who default on business loans they extend. Often abbreviated as UCC-1, these notices are typically printed in local newspapers to alert the masses of the creditors’ intentions.

UCC-1s are required for all business loans under the Uniform Commercial Code (UCC) and establish a relative priority over which specific assets may be seized, and in what order, while solidifying the collection pecking order in cases where there are multiple lenders to the same debtor.

Key Takeaways

• A UCC-Uniform Commercial Code-1 (UCC-1) statement is a legal notice filed by creditors in an effort to publicly declare their right to seize assets of debtors who default on loans.
• UCC-1 notices are typically printed in local newspapers, in an effort to publicly express a lender’s intent to seize collateralized assets. 
• These forms are mainly used to smooth out collection processes, often by helping lenders secure court orders authorizing them to seize assets from delinquent borrowers.
• These forms must be filed with agencies located in the state where the borrower’s business is incorporated.
• There are two types of UCC-1 statements: blanket liens, and liens attached to specific collateral.

The UCC-1 statement serves as a lien on secured collateral , where the components and filing procedures are comparable to the lien requirements in residential mortgage loan contracts. The UCC-1 statement is a directive of the Uniform Commercial Code (UCC), which governs business deals and activities in the United States.

According to the ninth article of the UCC, titled “Secured Transactions,” a lender must incorporate completed UCC-1 statements in a business loan’s contract for it to be deemed effective. The statements must include detailed information about the borrower, and they must itemize descriptions of all assets named as the secured collateral for the loan. While virtually any type of asset may serve as such collateral, the most commonly used items include real estate properties, motor vehicles, manufacturing equipment, inventory, and investment securities such as stock and bond holdings.

As with any ordinary lien, lenders must perfect the UCC-1 statement by filing it with the appropriate agency in the state where the debtor company is incorporated. In most cases, UCC-1 statements are filed with the secretary of state’s office, which subsequently time-stamps the document and assigns a file number to the associated parties.

In industry jargon, the process of issuing UCC-1 notices is referred to as “perfecting the security interest” in the debtor’s property.

Lenders have the option of filing the following two types of UCC-1 statements:

• Specific collateral UCC-1 statements . These are most commonly used in real estate or equipment transactions. They give lenders first-order secured rights to real estate properties or specific collateral such as the equipment purchased with the loaned funds.
• Blanket lien . This gives the lender secured rights to a range of assets, as long as the terms of these liens are detailed in the collateral section of the UCC-1 statement. Lenders tend to prefer blanket or “all-asset” liens.

How a UCC Filing Affects Credit Scores

Like individuals, most businesses have a credit report and score . While a UCC lien will appear on a business’ credit report, it won’t necessarily have an immediate negative impact on the business’ credit score, unless the business should default on the underlying loan.

The loan attached to the UCC filing will also increase a business’ credit utilization ratio , which, if it gets too high, can negatively impact the score. Furthermore, the business won’t be able to use the same piece of property as collateral for a different loan if there is a lien attached to it.

Say a construction company named Alex’s Excavation applies for a business loan to purchase two new hydraulic excavators. Bank XYZ is interested in offering Alex a loan, and as part of the contract, it files a UCC-1. Shortly afterward, Alex’s Excavation loses one of its biggest construction contracts, and then another, and the company is forced to file for bankruptcy .

Because the company had several lenders, it’s likely that Bank XYZ would not be given first-order rights to Alex’s property and would have to wait until all other lenders were paid. However, because the bank filed a specific collateral lien on the two excavators, it received the property/cash mentioned in the UCC-1 statement in a timely fashion.

Filing a UCC-1 statement allows creditors to collateralize or “secure” their loan by utilizing the personal property assets of their customers. In the event of a customer defaulting on their loan or filing for bankruptcy, a UCC-1 elevates the lender’s status to a secured creditor, ensuring that it will be paid.

While rules vary by state, there are essentially two ways to remove a UCC lien:

• The first is to ask the lender to immediately remove the lien upon full payment of the loan by filing a UCC-3 statement.
• The other option, if your lender fails to file a UCC-3 after you’ve paid off the loan, is to visit your local secretary of state’s office and swear under oath that you have fulfilled the debt in full and request to have the UCC-1 removed.

A UCC-1 statement is effective for five years. After this five-year period, the lien becomes null and void.

A continuation statement is an amendment attached to a UCC-1 financing statement. Continuation statements extend the lender’s lien on the borrower’s collateral past the original financing statement’s expiration date. When a lender files a continuation statement, the continuation statement extends the UCC-1 financing statement by five years from the date of filing.

UCC filings let creditors notify other creditors about a debtor’s assets that are used as collateral for a secured transaction. UCC liens filed with the appropriate secretary of state’s offices serve as public notice of the creditor’s interest in the assets. To check for UCC filings, visit your secretary of state’s website.

National Association of Secretaries of State. “ UCC Filings .”

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