Law firms are often required by their clients to maintain or update the UCC filings used to perfect their clients’ security interests after closing large financing deals.
UCC monitoring is a simple and effective method of tracking current UCC filings to eliminate accidental lapses. Monitoring helps identify other filings that have adversely affected the secured party’s filing, and it also helps to ensure that a filing has not been inadvertently terminated.
UCCs: The state does not monitor
The state files and maintain records. That’s it. It’s not the job of the state to keep track of your UCC filings.
The lack of uniformity across systems is part of the problem. Few states have modern databases that can help you file and monitor UCCs. Remember, even if a party submits their filing electronically, a state employee is entering information into that system manually. That means, believe it or not, they can (and do) get it wrong.
Searches to reflect: Added insurance for secured lenders
A search to reflect is a search for a UCC filing with the state’s filing office after it was posted to the state’s UCC index. It provides assurance to the secured party of the proper indexing of their UCC filing — without which its security interest may not be properly perfected, leaving its priority position relative to other creditors in jeopardy.
The advantages of a search to reflect
Here are some of the advantages of a search to reflect.
Confirm perfection. If a search using the correct debtor name does not uncover a lender’s UCC-1 financing statement, that UCC-1 may be considered seriously misleading and will not effectively perfect the lender’s security interest. A search to reflect will uncover that fact and allow the lender to make a proper filing.
Catch errors. The mere fact that the filing office accepted and indexed a UCC filing does not guarantee that it does not contain errors – made either by the secured party in filling out the UCC form, or the filing office in entering the data from the UCC form to the index. Even the slightest error in setting forth the debtor’s name, for example, can leave the lender with an unsecured interest in the debtor’s collateral. A search to reflect can give the secured party an opportunity to quickly fix those errors
Find amendments or terminations. A search to reflect can also uncover whether any amendments were made to its financing statement or whether a termination statement was filed that the secured party was unaware of that can also leave it without a perfected security interest. It can also reveal if the secured party intended to make an amendment or termination filing, that they were properly indexed, and they were without errors.
Uncover other liens. Even if a UCC search was conducted as part of the due diligence process before the loan was made, the lender may wish to learn about other liens made against the debtor’s property thereafter. A search to reflect can uncover financing statements filed against the assets of the debtor after the initial UCC search.
Search to reflect helps to de-risk the UCC filing process and is a first step towards effective UCC tracking throughout their lifecycle.