What Is a UCC Filing & How a UCC Lien Works

When you borrow money, the lender may require you to provide collateral for the loan. If you default on the loan, the lender can exercise its legal right to claim the asset as payment for the debt. A security instrument is filed in the public records where the property is located to ensure that other parties are aware of a creditor’s lien on the property. South Carolina business attorneys assist creditors and lenders in properly securing liens on collateral to protect their rights in case a borrower defaults on a loan. 

What Is a UCC Financing Statement? 

The Uniform Commercial Code (UCC) regulates business transactions. Revised Article 9 of the UCC governs security interests in property owned by the borrower. In a secured transaction, the borrower pledges property as collateral to secure the loan. 

A UCC financing statement is the form used to file notice of the security interest. The forms are filed with the South Carolina Secretary of State’s Office. The public can search for UCC statements online or in person. Some UCC statements must also be filed in the county in which the property exists, including statements securing an interest in mineral rights, real estate fixtures, and timber.

UCC statements are active for five years; however, filing a UCC-3 statement continues the security interest for an additional five years. The security interest expires five years from the date of filing without a continuation statement. 

What Type of Property Can Be Secured by a UCC Statement?

An individual or business can grant a security interest in its property by signing a UCC statement. Lenders may require a business to sign a security agreement for the specific property being purchased or pledge additional collateral to secure the lien. In some cases, a lender may require a “blanket” UCC statement. A blanket UCC filing gives the lender a security interest in all of the business assets.

Examples of business assets used to secure a UCC lien include, but are not limited to:

  • Accounts receivable
  • Vehicles
  • Equipment
  • Inventory
  • Office equipment
  • Real estate fixtures
  • Investment Securities

The property doesn’t need to be free and clear of previous UCC liens for a creditor to file a UCC statement. Likewise, a UCC statement does not prevent other lenders from using the same collateral to secure another loan. 

A UCC statement creates a lien on the collateral as of the date of filing. The first lender to file a UCC has priority over lenders with subsequent UCC statements. The UCC statement serves as notice to other lenders that their interests are subordinate to other liens of record. 

Rights After Default on Debt Secured by UCC Statement

If the borrower defaults on the loan secured by the UCC financing statement, the lender has several options. The secured party may petition the court for a judgment against the borrower. It may also utilize available judicial procedures to repossess, foreclose, or otherwise enforce the claim against the property secured by the UCC statement. 

How the secured party enforces the lien depends on the type of property secured by the UCC statement and who has possession of the property. 

Contact Our South Carolina Business Attorneys to Discuss UCC Filings in More Detail

It is crucial that a lender correctly completes and files a UCC statement to secure an interest in collateral. Schedule a consult today. Our South Carolina business attorneys advise lenders and companies regarding the execution, filing, and enforcement of UCC statements in South Carolina.