After-acquired property collateral in UCC security agreements - what kind of property is acquired by debtor after the security agreement is made?
I'm working on a complex equipment financing deal and ran into a question about after-acquired property clauses. Our security agreement covers the debtor's current inventory and equipment, but I need to understand what happens with property the debtor acquires AFTER we execute the security agreement. The loan documents reference 'after-acquired property' but I'm not 100% clear on what types of property this actually includes. Are we talking about just inventory that gets restocked, or does this extend to new equipment purchases, accounts receivable from future sales, even real estate improvements? I've seen different interpretations and want to make sure our UCC-1 filing captures everything properly. The debtor operates a manufacturing business and they're constantly acquiring new raw materials, finished goods, and occasionally new machinery. How broad should our collateral description be to cover after-acquired property, and are there any limitations I should know about? This is a $2.8M credit facility so getting the perfection right is critical.
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Aisha Patel
After-acquired property generally includes any property of the same type or category that the debtor acquires after the security agreement is executed. So if your original collateral includes 'inventory,' then new inventory acquired later would automatically be covered. Same goes for equipment, accounts, general intangibles, etc. The key is that your collateral description needs to be broad enough to encompass future acquisitions of the same type.
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LilMama23
•This is exactly right. The after-acquired property clause essentially creates a floating lien that attaches to new property as it's acquired. Just make sure your UCC-1 collateral description uses language like 'all inventory, now owned or hereafter acquired' to make it crystal clear.
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Dmitri Volkov
•Wait, so if I have a security agreement that covers 'equipment' and the debtor buys a new machine next month, I'm automatically perfected in that new machine without filing anything else?
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Aisha Patel
•Yes, assuming your original UCC-1 filing properly described the collateral as including after-acquired property. The security interest attaches automatically when the debtor acquires rights in the new equipment.
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Gabrielle Dubois
Be careful though - after-acquired property clauses don't work for all types of collateral. Consumer goods acquired more than 10 days after the secured party gives value are specifically excluded under UCC 9-204(b)(1). Also, commercial tort claims have to be specifically described, so generic after-acquired property language won't cover future tort claims.
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Klaus Schmidt
•Good point about consumer goods. In our case it's all commercial/business property so that shouldn't be an issue. What about accounts receivable though? If the debtor generates new A/R from future sales, those would be covered under an after-acquired property clause for accounts, right?
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Gabrielle Dubois
•Absolutely. Accounts receivable are one of the most common types of after-acquired property. Future A/R generated from ongoing business operations would definitely be covered if your collateral description includes accounts.
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Tyrone Johnson
I had a similar situation recently and discovered Certana.ai's document verification tool. You can upload your security agreement and UCC-1 filing, and it automatically cross-checks whether your collateral descriptions properly cover after-acquired property. Really helpful for catching gaps in coverage before they become problems.
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Klaus Schmidt
•Interesting, how does that work exactly? Does it flag potential issues with the language used?
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Tyrone Johnson
•Yeah, you just upload your docs as PDFs and it analyzes the collateral descriptions for consistency and completeness. It caught an issue in my filing where the security agreement mentioned 'inventory and equipment' but my UCC-1 only said 'inventory.' Could have been a big problem down the road.
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Ingrid Larsson
Just want to add that the timing of when the security interest attaches to after-acquired property can be important. It happens when the debtor acquires rights in the property, not necessarily when they take physical possession. For inventory, this might be when title passes, which could be different than delivery date.
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Carlos Mendoza
•True, and this can matter for priority disputes with other creditors. If another secured party files after your original filing but before the debtor acquires specific property, you'd still have priority in that after-acquired property.
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Zainab Mahmoud
•Ugh, priority issues give me a headache. Why can't these rules be simpler?
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Ava Williams
One thing to watch out for - some debtors try to argue that major equipment purchases weren't contemplated by the original after-acquired property clause. I always make sure the security agreement explicitly states that after-acquired property includes equipment of any value to avoid these disputes.
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Raj Gupta
•Good practice. I've seen debtors claim that a $500K piece of machinery was somehow different from the 'equipment' covered in the original agreement. Better to be over-inclusive in your drafting.
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Klaus Schmidt
•That's a great point. Our debtor does periodically make large equipment purchases so we'll want to make sure that's clearly covered.
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Lena Müller
Don't forget about proceeds too. If the debtor sells after-acquired property, you want to make sure your security interest continues in the proceeds of that sale. Your collateral description should include proceeds language.
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TechNinja
•Yes! Proceeds are often overlooked but super important. If the debtor sells inventory (including after-acquired inventory), you want your security interest to continue in the cash or accounts receivable from that sale.
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Keisha Thompson
•How long does the proceeds coverage last? Is there a time limit?
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Lena Müller
•Proceeds coverage is automatic and continues indefinitely as long as you're properly perfected in the original collateral. No time limit on identifiable cash proceeds, and 20 days for identifiable non-cash proceeds unless you take additional steps.
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Paolo Bianchi
I'm dealing with something similar but my debtor is a retailer. They're constantly getting new inventory shipments. Would each new shipment be considered after-acquired property?
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Aisha Patel
•Exactly. Each new inventory shipment would be after-acquired property covered by your security interest, assuming your collateral description includes after-acquired inventory.
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Paolo Bianchi
•Perfect, that's what I thought but wanted to confirm. Thanks!
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Yara Assad
Real estate is typically excluded from after-acquired property clauses unless specifically mentioned. So if your debtor later buys land or buildings, those wouldn't automatically be covered. You'd need a separate mortgage or deed of trust.
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Klaus Schmidt
•Good to know. In our case the debtor leases their facility so real estate shouldn't be an issue, but that's definitely something to keep in mind for future deals.
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Olivia Clark
•What about fixtures though? If the debtor installs new equipment that becomes a fixture to the real estate, how does that work?
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Yara Assad
•Fixtures are tricky because they involve both personal property and real estate law. You'd typically need to file a fixture filing (UCC-1 filed in the real estate records) to perfect your interest in fixtures.
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Javier Morales
We use Certana.ai for all our UCC filings now. The after-acquired property analysis feature is really helpful - it flags potential coverage gaps and suggests language improvements. Saved us from a major mistake on a $5M deal last month.
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Klaus Schmidt
•That sounds like exactly what I need. Where do you access that feature?
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Javier Morales
•Just upload your security agreement and UCC-1 as PDFs and it does the analysis automatically. Really straightforward to use.
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Natasha Petrov
One practical tip - make sure your loan monitoring includes periodic updates on major after-acquired property. Even though you're automatically perfected, it's good practice to know what significant assets the debtor has acquired.
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Klaus Schmidt
•That makes sense for monitoring purposes. We have quarterly reporting requirements so we can build that in.
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Connor O'Brien
•We require debtors to notify us of any equipment purchases over $50K. Helps us stay on top of their operations and collateral base.
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Natasha Petrov
•Good approach. The notification threshold should probably scale with the size of the credit facility.
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Amina Diallo
Just want to echo what others have said about making sure your UCC-1 collateral description is broad enough. I've seen deals where the security agreement had good after-acquired property language but the UCC-1 filing was too narrow. Remember, the UCC-1 is what third parties see when they search.
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Klaus Schmidt
•Great point. So even if the security agreement covers after-acquired property, if the UCC-1 doesn't reflect that, we could have problems?
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Amina Diallo
•Exactly. The UCC-1 needs to reasonably identify the collateral, including after-acquired property. Don't rely solely on the security agreement language that third parties can't see.
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GamerGirl99
•This is why I always include 'whether now owned or hereafter acquired' language directly in the UCC-1 collateral description.
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Giovanni Rossi
This is a great discussion! For your $2.8M manufacturing deal, I'd recommend using very broad collateral language in both your security agreement and UCC-1. Something like "all inventory, equipment, accounts, chattel paper, instruments, documents, deposit accounts, general intangibles, and all other personal property of debtor, whether now owned or hereafter acquired, wherever located, and all proceeds and products thereof." The key phrase "whether now owned or hereafter acquired" makes it crystal clear that you're claiming after-acquired property. For a manufacturer, this would automatically cover new raw materials, finished goods, equipment purchases, A/R from future sales, and even things like intellectual property developed later. Just remember that your security interest attaches when the debtor gets rights in the property, not when they take possession, so timing can matter for priority purposes.
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