Financing statement
A U.C.C. Financing Statement is a short, simple record filed for the purpose of giving constructive notice of a secured party's interest in property of the debtor. See our copy of a financing statement. [Need to replace financing statement, amendment, and termination statements in our sample documents with the safe harbor forms of U.C.C. 9-521]. In contrast, the real property secured creditor will record the security instrument itself (mortgage or deed of trust) to give constructive notice of a consensual lien on real property. While a financing statement is a short and simple record, Article 9 devotes twenty-seven sections (all of Part 5) to the filing system.
To perfect a security interest in personal property or fixtures through the filing of a financing statement, such a filing must be either a permissible or mandatory method of perfection. Filing is a permissible or mandatory method of perfection with respect to some types of collateral but is either not mandatory or not permissible with respect to other types of collateral. See Commentary.Perfection of security interest in personal property. The security interest will not be perfected if one files a financing statement where filing is not a permissible method of perfection or if one fails to file a financing statement where filing is a mandatory method of perfection.
To perfect a security interest in cases where a financing statement may or must be used for perfection, the financing statement must be sufficient, it must be effective, and it must be filed in the correct location. We explore each of these requirements in turn.
Sufficiency
A financing statement is a record that must contain certain information. The record may either be written or in electronic form (U.C.C. 9-102(a)(39), (69)) although, as discussed below, a filing office may choose not to accept a record communicated by a particular method or medium. To be a sufficient record, the finanancing statement must provide the name of the debtor and the name of the secured party (or representative of the secured party) and must indicate the collateral covered by the financing statement (U.C.C. 9-502(a)). U.C.C. 9-502(b) states additional requirements for fixture filings or where the financing statement covers timber to be cut or as-extracted collateral. We elaborate on these requirements in Commentary.Sufficiency of finanancing statement.
Effectiveness
To be effective as a financing statement, the filing of the financing statement must be: (a) authorized by the debtor, and (b) accepted for filing in a filing office (with an exception noted below).
(a) A financing statement need not be signed by the debtor but, to be effective, the filing of a financing statement must be authorized by the debtor (U.C.C. 9-510(a)). Typically the debtor will provide such authorization by becoming bound under the terms of a security agreement (U.C.C. 9-509(b)) or by a separate authorization (U.C.C. 9-509(a)(1)).
(b) Acceptance of a financing statement by a filing office will routinely take place when the financing statement is communicated to the filing office accompanied by the requisite filing fee. Filing fees are specified in a state's version of U.C.C. 9-525. The filing office must refuse to accept a financing statement for some reasons (e.g. insufficient filing fee or insufficient information on the financing statement) but is otherwise required to accept a financing statement. U.C.C. 9-520(a), U.C.C. 9-516(b), (c). If a filing office properly refuses to accept a financing statement for filing, the financing statement is not effective. If a filing office makes a mistake by accepting a financing statement that it should not have accepted, the financing statement is nonetheless effective, U.C.C. 9-520(c), and if a filing office makes a mistake by refusing to accept a financing statement that it should have accepted, the financing statement is nonetheless effective as a filed record except as against a purchaser of collateral who gives value in reasonable reliance upon the absence of the record from the files. U.C.C. 9-516(d).
Recall, however, that a financing statement that is effective (i.e. authorized for filing by the debtor and accepted by the filing office) must also be sufficient, must be filed in the correct location, and must be a permissible method of perfection in order for the filing to perfect a security interest.
A filing office may choose to accept communication of either a written or an electronic record, or both (U.C.C. 9-516(b)(1)). Presumably most if not all states soon will accept communication of an electronic record and some states may ultimately choose not to accept communication of a written record. If a filing office does not authorize the communication of a particular type of record (e.g. written), the communication of such a record, if rejected by the filing office, does not constitute a filing (U.C.C. 9-516(a), (b)) and therefore cannot perfect the security interest. Article 9 provides a "safe harbor" form of written financing statement in U.C.C. 9-521 but does not require its use. A filing office that accepts written financing statements may not refuse to accept this safe harbor form except for the reasons specified in U.C.C. 9-516(b) (U.C.C. 9-521(a)). Because of this safe harbor, it is likely that most secured parties who wish to communicate a written financing statement to a filing office that accepts written records will use the safe harbor form.
The filing office is obligated to index financing statements accepted for filing, generally by the name of the debtor (U.C.C. 9-519), but a mistake in indexing by the filing office does not affect the effectiveness of the financing statement (U.C.C. 9-517).
Correct location
To perfect a security interest where a security interest may be perfected by filing, the financing statement must be filed in the correct location. If not filed in the correct location, even if sufficient and even if effective as a filing, the financing statement will not perfect the security interest. U.C.C. 9-301(1), U.C.C. 9-501(a). To determine the correct location, one must first apply a choice of law rule to identify the state whose law will describe the location (U.C.C. 9-301). Upon identifying the correct state by applying the choice of law rule, U.C.C. 9-501 describes the location of filing within that state. We explore these concepts more fully in Commentary.Location of filing and Problem.Location of filing.
After filing
Generally, the financing statement is effective for five years from the date of filing (U.C.C. 9515(a)). At the end of the five year period, absent renewal, the effectiveness of the financing statement lapses (U.C.C. 9-515(c)). It may be renewed for a five year period (and for successive five year periods) through the filing of a continuation statement during the last six months of the five year period (U.C.C. 9515(d), (e)). A continuation statement not filed within the six month period is ineffective U.C.C. 9-510(c).
Article 9 also includes provisions concerning the amendment of financing statments (U.C.C. 9-512), including amendments assigning the powers of a secured party of record to an assignee (U.C.C. 9-514(b)), the filing of a correction statement (U.C.C. 9-518), and the filing of a termination statement (U.C.C. 9-513). We do not explore the details of those provisions in these materials.
Events occurring subsequent to the filing of a financing statement (or subsequent to renewal or amendment of a financing statement) may make the information in a financing statement inaccurate and misleading. We consider the issues raised by such events in Commentary.Events subsequent to filing.
Searching
If the filing of a financing statement is a mandatory or permissible method of perfecting a security interest, someone wishing to know whether someone else claims a security interest in personal property or fixtures of the debtor must search for a financing statement in the appropriate location. Any person may initiate a search and obtain the relevant information by a request to the appropriate filing officer (U.C.C. 9-523(c)).
Absence of a financing statement from the location(s) in which it should be filed connotes to any searcher that there is no perfected security interest in property of the debtor as of the time of the search, unless a security interest has been perfected in an alternative way (e.g. possession of the collateral by the secured party). Discovery of a financing statement by a searcher alerts the searcher to the possibility of a perfected security interest in property of the debtor and provides the name of the secured party from whom the searcher can request further information. What further information would the searcher want? Recall Commentary.Relationship Between Debt and Value of Collateral. What information is in the financing statement?
Practical information
The offices of the California Secretary of State and the New York Department of State provide useful practical information on line about filing and searching (e.g. lists of forms, fees, instructions, direct computer access services, frequently asked questions).
The secured party may file, renew, amend, or terminate a financing statement on its own, but frequently does so through a commercial service performing those functions. Interested parties can undertake an informal on-line search through Lexis-Nexis or Westlaw (note U.C.C. 9-523(f)) and may retain a commercial service to undertake a formal search.