UCC Termination Statements, a Trap for the Unwary: Part Two
UCC
For the next several weeks, we welcome back guest author, attorney, Bennett L. Cohen to the FCS blog! Read on for the second installment in his blog series addressing the intricacies of UCC Termination Statements
UCC Termination Statements, a Trap for the Unwary: Part Two
A crucial principle to remember is that an “unauthorized” filed termination is not effective to terminate the UCC filing described in such termination. If you rely on a UCC termination in a search that was not authorized to be filed by the “secured party of record” (as described below) or by the debtor (but only under the special circumstances described below permitting a debtor to terminate a UCC filing), you act at your own peril, because the UCC filing that you thought was properly terminated, is still effective, notwithstanding the filed termination of record.
A general principle to keep in mind is that only the “secured party of record” as described in Code Section 9-511 has authority to terminate a UCC filing (except for the limited circumstances described below where a debtor is authorized to terminate a UCC filing).
If a UCC filing was previously assigned by Lender A to Lender B, upon the filing of such assignment, Lender B becomes the “secured party of record” (replacing Lender A), and the only party authorized to terminate the UCC filing, provided, however, that Lender A in fact made a full (total) assignment of its interest in all of the collateral described in the initial financial statement to Lender B.
This last paragraph highlights a significant ambiguity under the Code when dealing with UCC assignments (and the following discussion necessarily focuses only on UCC assignment issues as they pertain to UCC terminations).
Stay tuned for part three next week.
About the Author
Bennett L. Cohen is a partner in the law firm of Cohen, Salk & Huvard, P.C. in Northbrook, Illinois, a Chicago suburb. Bennett regularly represents banks, commercial finance companies, insurance companies and other institutional lenders in the structuring, documentation and closing of commercial financing transactions, including asset-based loans, commercial loans, commercial real estate mortgage and construction loans, mezzanine loans, leveraged acquisitions, equipment lease loans and factoring transactions. Bennett is a member of the American Bar Association and serves on the ABA Committee on Commercial Financial Services and the ABA Subcommittees on Secured Lending, Loan Documentation and the Uniform Commercial Code. Bennett can be contacted at bcohen@cshlegal.com.