What is a UCC Filing: History, Process, and Termination of Liens

UCC stands for Uniform Commercial Code. Uniform Commercial Code is a comprehensive set of model laws that concern commercial transactions in the United States.

According to the UCC Filings definition, Uniform Commercial Code Filing is a form of document or notice employed by lenders to secure transactions when lending debtors' money. It allows the lender to recoup the loan money in case of default by establishing rights over the listed property of the debtor, which is used as collateral to secure the loan.

UCC Filing protects the creditors against the occurrence of debtors' default in loan payments. It enables the creditor to seize the pledged property as collateral to cover the default loan balance.

History of Uniform Commercial Code Filing

The Uniform Law Commission (ULC) was formed in 1892 to design uniform commercial laws for all the states in the US.

Subsequently, different commercial laws came into existence, kickstarting the process of approving the Uniform Negotiable Instruments Law in 1896. Laws that followed after were:

• The Uniform Sales Act and Uniform Warehouse Receipts Act (approved in 1906)
• The Uniform Bills of Lading Act and Uniform Stock Transfer Act (approved in 1909)
• The Uniform Conditional Sales Act (approved in 1918)

In 1942, the ULC, with a joint partnership with American Law Institute, formed a comprehensive set of laws by combining all elements, thus bringing the Uniform Commercial Code or ULC into existence.

ULC is a model law; it is offered rather than mandatorily applied to the states for enactment. It was suggested in 1951, and Pennsylvania became the first state to adopt it in 1953. Soon, almost all the other states started adopting and enacting it, and each has its version of the UCC.

How does the UCC or Uniform Commercial Code Filing work?

The UCC governs commercial transactions such as contracts and loans in the USA. A lender files UCC using a UCC financing statement known as the UCC - 1 financing statement over the specified property or properties listed by the debtor as collateral to secure the loan.

UCC filing gives priority rights over that property to the lenders to secure the transaction and recuperate the losses if the borrower defaults on the loan repayment.

Since all 50 states in the US have adopted the Uniform Commercial Code Law, it helps to regulate and simplify all interstate commercial transactions in a secure manner with uniform laws.

UCC - 1 Financing Statement

UCC - 1 Financing statement is the form that the creditor files with the secretary of the state located at the business or borrower's location. It is a legal notice that identifies the creditor's rights and lien over the listed property.

This statement or notice is usually published to let the masses or other creditors know the rights and interests of the creditor in the collateral to potentially seize the property in the case of any loan default by the borrower.

UCC - 1 Financing Statements can stay in effect for only five years. So, creditors must renew their statements every five years to secure long-term transactions or loans borrowed for more than five years.

Types of UCC - 1 Financing Statements

There are two options available to creditors and borrowers to secure financing when it comes to UCC – 1 Financing Statements. A lien is placed against the collateral. It can be done in two ways:

• Specific Collateral UCC – 1 lien
• Blanket lien

Specific Collateral UCC - 1 lien

A lien is placed against a specific collateral, equipment, or asset to secure financing, which the creditor can seize upon the loan default to recuperate the losses or part of it. Specific collateral can be real estate property or equipment in case of equipment financing in which the creditor has the first-order secured right to sell to recover the loan's outstanding balance.

Blanket lien

As the term suggests, a blanket lien covers a range of assets of the borrower for the creditor to claim against in the event of non-payment or default of the loan. It does not target specific collateral but gives the lenders priority rights to claim against any asset or assets to recover the losses.

How to terminate a UCC lien?

Once the complete repayment of the outstanding loan balance is complete, the lender can terminate the UCC lien by filing the UCC - 3 financing statement with the secretary of the state office and release the property.

But if the creditor fails to do that, the borrower can request the lender by submitting a formal request to terminate the lien and release the property. If the creditor fails to express it within 20 days, the borrower can file the UCC - 3 to request the termination or removal of the lien.

Conclusion

The type of loan or amount borrowed and lent or lien placed against the collateral to secure funds can vary and depend on different factors. But, it is always advisable to file for UCC to secure your transactions in the right manner for the law to protect you and conduct business in a safe and simplified way.