What is UCC filing?

UCC filing is mostly known as a set of rules which is a abbreviation of Universal Commercial Code. It is used by every state, either full time or part time and its is also used as to standardize business and commercial transactions. Article 9 of the code deals with secured transactions and more specifically, UCC filings.

Function and Purpose

When a person 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 rules.

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

How It Works

For example , if 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 UCCs filings.

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