Risk Management Blog

According to Revised Article 9 of the Uniform Commercial Code, a UCC Financing Statement is only effective if it gets the debtor name right. A UCC filing that fails to properly identify the debtor by their exact legal name will not offer the secured party priority status to collect should the debtor default or file for bankruptcy. Searchers often mistakenly interpret this to mean they only need be concerned with filings that provide an exact name match to their target. In truth, when performing lien searches it is a good idea to include name variations (aka similar names) in your search effort.

Here’s why:

Locating Tax Liens
Many state filing offices are responsible for administering tax liens in addition to UCC records. In some cases, these involuntary liens are even maintained on the same searchable index as the UCC filings. This can pose a problem for searchers because the Uniform Commercial Code does not govern tax liens. This means that the parties who file tax liens (Internal Revenue Service, Employment Development Department etc.) are not held to the same strict debtor naming conventions as those who file UCC documents. These agencies may file under slight name variations that would cause an active tax lien not to reflect on an exact name search. A search that includes name variations would help locate tax liens that have named the debtor outside the Uniform Commercial Code’s Revised Article 9 guidelines.

Indexing Errors
Human error can occur at any point during the filing process, even at the filing office. Once the filing officer accepts a document for filing, party names and addresses along with other pertinent filing information are manually indexed into the public record. If the filing office commits a typographical error when inputting the debtor name, a properly completed, perfected UCC Financing Statement may fail to show up on an exact name UCC search. A search that uses broad-based logic to uncover similar names will help locate filings that have been mis-indexed at the filing office.

Check back next week when we debunk another common misconception about UCC and Corporate Due Diligence!