Top 5 Misconceptions About UCC & Corporate Due Diligence Series # 2: No Need to Order a Nationwide UCC Search
UCC, Corporate, Due DiligenceThis week we tackle another common misconception relating to UCC and corporate due diligence: the need for a nationwide UCC search. On occasion, one of our customers will request a nationwide UCC search, meaning they want a search to reflect any UCCs against their party that were filed anywhere in the nation.
These searchers have the right idea: be diligent to find out as much as possible about your prospect’s existing financial obligations before making a funding decision. The last thing any lender wants is a surprise lien. While the intent is good, a nationwide UCC search is costly and unnecessary.
All UCC search methodology actually stems from UCC filing rules, which are established under Article 9 of the Uniform Commercial Code. The Code states that UCCs are to be filed in the following locations, based on the type of debtor:
Registered Business: file in the state where their organizing paperwork is filed
Unregistered Business: file in the state where they have their chief executive office
Individuals: file in the state where they hold their primary residence
In order to perfect a security interest, a UCC Financing Statement must be filed on the correct debtor name and in the appropriate filing office. A secured party who filed their UCC Financing Statement in the wrong jurisdiction will not enjoy a priority position to collect.
Searchers are typically interested in locating perfected UCCs since an unperfected filing does not represent a competing claim. Therefore, it is not necessary to perform searches beyond the indices described above. A nationwide search will confuse a search effort by reporting an abundance of similar name filings and/or unperfected UCCs.
Check back next week when we debunk another common misconception about UCC and Corporate Due Diligence!
2 thoughts on “Top 5 Misconceptions About UCC & Corporate Due Diligence Series # 2: No Need to Order a Nationwide UCC Search”
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There are exceptions to what Sam explained: UCC Section 9-301(3)(A) provides that when goods are located in a jurisdiction, local law governs perfection of security interest in the goods by filing a fixture filing. 9-301(3)(B) indicates the same for location of timber to be cut.
It helps to compile a list of exact legal Debtor names (as indicated in the organic formation documents) and location of collateral that are or are to become fixtures (assuming that fixtures are part of the collateral package).
Other exceptions exist (such as 9-307(j)) regarding location of a foreign air carrier – “the designated office of the agent upon which service of process may be made on behalf of the carrier.”
Hi John,
You’re right! Thank you for supplying some additional information regarding Fixture Filings, etc! We always welcome comments from our readers.