Risk Management Blog

FAQ Blog Series – Topic # 1

It’s a fact; public records can be confusing. Effective public records research requires the understanding of a dizzying array of codes and statutes, industry jargon and jurisdictional variances. As professionals in the field, there are certain questions that we get asked all the time. At First Corporate Solutions, we believe we fulfill a dual role of expert and educator, which is why are starting a blog series to address our most frequently asked questions.

Frequently Asked Question # 1:

I accidentally let my UCC1 financing statement lapse. What can I do?

A UCC1 financing statement is effective for a period of five years. A record that is not continued before its lapse date will cease to be effective, costing the secured party their perfected status and perhaps their priority position to collect.

Once a financing statement has lapsed, it cannot be revived. If the underlying security agreement endures, a secured party should work with their legal or risk management department to determine the best tack specific to their transaction. The following information represents a popular course of action.

Step 1: Perform a Lien Search
A lapsed UCC filing opens the door for once-subordinate filers to secure a priority position. If your financing statement lapses in error, it is a good idea to run a lien search in the appropriate filing office to see if any parties filed claim subsequent to your original UCC1. If your search reveals no additional liens, let out a sigh of relief and advance to Step 3.

Step 2: Damage Control
Should your search uncover any liens that were filed following your original UCC financing statement, those lien-holders may have moved into a priority position. For non-UCC liens such as tax liens, it is advisable to work with your debtor to find out if the debt has been satisfied. If so, you may want to ask the debtor to request that the issuing body file a tax lien release.

For UCCs, remember to review the collateral descriptions very carefully to determine if they represent a competing claim for the property set forth in your security agreement. If they do, consider contacting the other secured party to check if the debtor’s obligation has been satisfied, or if the secured party would be willing to negotiate a subordination agreement.

Step 3: File a new Financing Statement
After performing a lien search and taking what steps you can to minimize your risk, you will likely want to file a new UCC1 financing statement to secure a place in line to collect.

Please remember, if your UCC filing has lapsed in error, the most important step you can take is to consult with your legal counsel.

Although there is no way to revive a lapsed financing statement, there are tools you can use to minimize their occurrence. Try working with a UCC service company that offers a web-based UCC portfolio management tool. Many online filing systems include UCC tracking features that will alert you when filings are nearing their lapse date, allowing you ample time to prepare continuations.

Check back next week for Part 2 of the FAQ blog series!

*Disclaimer