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#619934 - 09/29/06 04:18 PM Maintaining UCC's after all loans are paid
twicethebank Offline
Member
Joined: Aug 2004
Posts: 91
OKLAHOMA
If we have a ucc filed on all equipment, etc. and loans are all paid out are we allowed to hold on to this ucc filing indefinitely or does it need to be released once all loans are paid?

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Article 9
#619935 - 09/29/06 07:06 PM Re: Maintaining UCC's after all loans are paid
Tom at HOME Offline
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Joined: Oct 2005
Posts: 1,139
It depends. In most states (not all) if you filed on equipment and the loan has been paid off, if you still have possession of the document the debtor signed to authorize the filing, no termination is required. However, if you destroyed or returned to the debtor the document, then you must terminate the UCC or be subject to (in most states) a $500 fine.

This is why a wise lender would not use the security agreement as the authenticated record to authorize a filing. It is legal to do so, it’s just not smart.

In what state did you file the financing statement?

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#619936 - 10/02/06 04:29 PM Re: Maintaining UCC's after all loans are paid
Jay Bruce Offline
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Jay Bruce
Joined: Apr 2002
Posts: 546
The New Loft Chamber
According Oklahoma's Rev. Art. 9, section 1-9-513, a termination statement must be filed (or sent to the debtor) 20 days after the secured party receives an authenticated demand from the debtor, if the collateral is other than consumer goods. In the case of consumer goods, a termination statement must be filed once the secured loan is paid off and there is no commitment to make a future advance.

The UCC Comment on this section states: "This section specifies when a secured party must cause the secured party of record to file or send to the debtor a termination statement. Because most financing statements expire in five years unless a continuation statement is filed, no compulsion is placed on the secured party to file a termination statement unless demanded by the debtor, except in the case of consumer goods."
_________________________
J. Bruce

"A man in a kilt is a man and a half!"

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#619937 - 10/02/06 06:25 PM Re: Maintaining UCC's after all loans are paid
Tom at HOME Offline
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Joined: Oct 2005
Posts: 1,139
Bruce, you are correct, and the requirement for a termination when the collateral is consumer goods and the debtor does not request such termination, is within one month of the secured party losing its security interest.

However, the question was regarding equipment and not consumer goods. The requirement to terminate, when not consumer goods, is only upon a written request of the debtor. No third party can enforce this requirement. If the debtor still owes the secured party (that was perfected by a filing) such secured party can ignore the written request of even the debtor. (My last statement is not true if the secured party filed without proper authority. But in that case the filing is ineffective anyway. All of this is good for a CLE course but gets a little technical here.)

All of this is true for Oklahoma, but other states may vary. For example, there is one state that requires a termination within 60 days regardless of type of collateral if the debtor did not made written demand. On the other hand, there are states that do not require an automatic termination within one month for consumer goods, but only if the consumer requests the termination in writing. That is why I ask in what state they file the financing statement. That is a state specific question.

Did you notice in your quote of the official comments the phrase “secured party must cause the secured party?” That phrase is not only in the comments but is also in the Code. Think about that one and we can spend a few more days discussing that phrase and what it means.

I love this stuff.

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#619938 - 10/02/06 07:39 PM Re: Maintaining UCC's after all loans are paid
Jay Bruce Offline
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Jay Bruce
Joined: Apr 2002
Posts: 546
The New Loft Chamber
Quote:

Did you notice in your quote of the official comments the phrase “secured party must cause the secured party?” That phrase is not only in the comments but is also in the Code. Think about that one and we can spend a few more days discussing that phrase and what it means.

I love this stuff.




I think you might love this stuff a little too much!

I can't speak for all states, but in Oklahoma (and the Model Code) the statute says, A secured party shall cause the secured party of record for a financing statement to file the termination statement. "Secured party of record" is defined at section 1-9-511 (which had no counterpart under old Art. 9).

According to Comment 2 under Section 1-9-514, Assignment of Powers of Secured Party of Record, "under section 9-310(c) no filing of an assignment is required as a condition of continuing the perfected status of the security interest against creditors and transferees of the original debtor."

Hypothetical: Creditor A takes a security interest in collateral, files the UCC-1 (and so is the secured party of record) and then assigns the note and security agreement to Creditor B. If the financing statement is not amended to reflect the assignment, then Creditor A remains the secured party of record. Once the loan is paid off to Creditor B, then upon demand by the debtor, Creditor B should cause Creditor A to file the termination statement.

I'm sure there are other scenarios where the "secured party" and the "secured party of record" are not identical.
_________________________
J. Bruce

"A man in a kilt is a man and a half!"

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#619939 - 10/02/06 09:17 PM Re: Maintaining UCC's after all loans are paid
twicethebank Offline
Member
Joined: Aug 2004
Posts: 91
OKLAHOMA
Oklahoma is state we filed in!!! Thanks for both of your inputs.

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#619940 - 10/03/06 04:53 AM Re: Maintaining UCC's after all loans are paid
Tom at HOME Offline
Diamond Poster
Joined: Oct 2005
Posts: 1,139
What I found interesting is that the “secured party shall cause the secured party of record” as apposed to the “debtor shall cause the secured party of record.”

Who is causing the termination? It’s a secured party. However, action must be taken upon a written request of the debtor. Therefore, who is causing the filing of a termination, the debtor or the secured party? I could go on further but I think we have beaten this to the pulp already.

Yah, I love this too much.

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