Risk Management Blog

Filing offices have reopened across the country, but issues may linger and impact perfection of UCC filings

But be aware, there are issues at jurisdiction filing offices

Fortunately, some best practices can help alleviate those issues and assure your portfolio remains compliant. But before we review those best practices, let’s look at the issues.

• Many jurisdictions curtailed or stopped services, like over the counter services, causing backlogs and filing procedure issues.
• Some jurisdictions even implemented temporary new processes, such as accepting UCC filings via email. It’s difficult to know whether adequate controls were put into place to ensure that no filings temporarily or permanently went astray via any new processes.
• Most jurisdictions have been much slower with the processing of paper filings. The state jurisdictions that only allow electronic filing are exceptions – Colorado, Delaware, Mississippi, Montana, New Jersey, North Dakota, Ohio and West Virginia.

While attempting to conduct normal due diligence procedures, we’ve all experienced some impact throughout the COVID-19 crisis caused by the above jurisdictional issues.

The potential impacts from the above COVID_19 induced issues include, but are not limited to:

• Inaccurately indexed filings
• Non-indexed filings
• Missing data for searches since some jurisdictions are back dating UCC filings

All may affect your filing priority and portfolio.

That is a lot of uncertainty to manage for any secured party looking to perfect their security interests, or looking to maintain already perfected security interests. It’s not that the above did not occur before COVID-19, it’s that the jurisdictional issues caused by COVID-19 shutdowns potentially have made them more prevalent.

For example, “paper filings” can’t be processed via electronic filing and have to be printed and sent to jurisdictions due to the limitations of certain jurisdiction systems. That has always happened and not just because of the shutdowns, but now are potentially a greater issue due to how slowly some jurisdictions have been processing paper filings and back dating the filings to do the receipt date.

OK, so now that we know some of the jurisdictional issues that COVID-19 shutdowns caused, and what some of the impacts were and why, the big question becomes: what can a secured party do in this landscape to nonetheless perfect and maintain their security interests and mitigate any negative impacts?

Depending on what phase of due diligence a secured party is in, the following best practices can help you avoid any pitfalls and to be proactive for your due diligence in these uncertain times.

• File electronically whenever possible. Various state jurisdictions can’t handle attachments via electronic filing or may have low system character limits for collateral descriptions. If that’s preventing you from being able to electronically file, check with your legal counsel about shortening your collateral descriptions and not using attachments. You’ll also save money for the jurisdictions that charge extra for attachments or additional pages.
• Order a Search to Reflect for new UCC filings. A Search to Reflect is a post filing search “reflecting” or confirming that a UCC filing is on record. It casts light on any filing errors that may have occurred if the post-filing search does not reflect the UCC filing. Searches to reflect can also uncover any liens that may have been recorded just before or since the date of your filing
• Search again. Due to slow turnaround times for paper filings and also the possibility of filings being temporarily missing or mis-indexed and then corrected, order or run your search again at intervals, especially for critical accounts in your portfolio.
• Utilize an Account Monitoring service. For any existing borrowers or line of business of greatest concern, monitoring services are the most efficient for providing updated data and peace of mind to secured parties. Update searches are performed monthly , and alerts are automatically emailed to you of possible negative events for debtors. Other types of monitoring may include business entity, bankruptcy and court records.

The COVID-19 impacts on filing offices across the country continue to pose threats to due diligence efforts, both to perfect security interests and then to maintain perfection. Even if operational functions at filing offices return to pre-COVID-19 levels, potential issues remain.

You can do something about it and react proactively to these challenges

To learn more about how best practices, specifically search to reflects and Account Monitoring, can improve your due diligence processes, please click on the button below.