Can A Secured Party Be Liable For Failure To File Timely Terminations?UCC, Due Diligence
According to Section 9-625 of the Uniform Commercial Code, yes.
But first, let’s take a step back.
In Article 9-513, the section of the Uniform Commercial Code that regards Termination Statements, the below is found under subsection 9-513(b) to address how long a secured party of record has to file a termination statement of a financing statement covering consumer goods if all obligations have been fulfilled by the debtor:
9-513(b) [Time for compliance with subsection (a).]
(1) within one month after there is no obligation secured by the collateral covered by the financing statementand no commitment to make an advance, incur an obligation, or otherwise give value; or
Subsection 9-513(c), below, governs how long a secured party of record has to terminate a financing statement that covers other collateral types:
9-513(c) [Other collateral.]
In cases not governed by subsection (a), within 20 days after a secured party receives an authenticated demand from a debtor, the secured party shall cause the secured party of record for a financing statement to send to the debtor a termination statement for the financing statement or file the termination statement in the filing office if:
(1) except in the case of a financing statement covering accounts or chattel paper that has been sold or goods that are the subject of a consignment, there is no obligation secured by the collateral covered by the financing statement and no commitment to make an advance, incur an obligation, or otherwise give value;
(4) the debtor did not authorize the filing of the initial financing statement.
So what liabilities can a secured party of record incur for failure to follow these statutes?
Those answers can be found in Code Section 9-625, with a couple of pertinent excerpts below:
(b) [Damages for noncompliance.]
Subject to subsections (c), (d), and (f), a person is liable for damages in the amount of any loss caused by a failure to comply with this article. Loss caused by a failure to comply may include loss resulting from the debtor‘s inability to obtain, or increased costs of, alternative financing.
(e) [Statutory damages: noncompliance with specified provisions.]
In addition to any damages recoverable under subsection (b), the debtor, consumer obligor, or person named as a debtor in a filed record, as applicable, may recover $500 in each case from a person that:
Are you a secured party? Contact us today and consult with one of our experts to learn how FCS can help assure that your Termination Statements are filed in a timely manner.