UCC-3 subordination form causing priority dispute with second lender
Need help with a UCC-3 subordination form that's creating a mess with our equipment financing deal. We had a primary lender file a UCC-1 on manufacturing equipment back in March 2024, then a second lender came in for additional financing in September. The second lender is demanding we file a UCC-3 subordination to move their security interest ahead of the first lender's position. Problem is the first lender is refusing to sign off on the subordination agreement and we're stuck in the middle. The equipment is worth about $2.8 million and both loans are substantial. Has anyone dealt with a situation where you need to file a UCC-3 subordination form but can't get all parties to agree? The second lender is threatening to pull their funding if we don't get this resolved by next week. I'm reading conflicting information about whether the subordinating party has to actually consent to the UCC-3 filing or if there are workarounds. Any experience with priority disputes like this would be hugely appreciated.
40 comments
Join the conversation
Ethan Brown
Subordination agreements are tricky because they require consent from the party being subordinated. The UCC-3 subordination form is just the filing mechanism, but the underlying agreement between lenders is what matters. Without the first lender's signature, you can't legally subordinate their interest. Have you tried explaining to the second lender that they need to negotiate directly with the first lender?
0 coins
CosmicCrusader
•Yeah we tried that route but the first lender basically said they have no incentive to subordinate since they got there first. They're not being unreasonable about it, just protecting their position.
0 coins
Yuki Yamamoto
•That's exactly right - first in time, first in right. The first lender has no obligation to subordinate unless there's something in it for them.
0 coins
Carmen Ortiz
I've been through this exact scenario with construction equipment financing. The key is understanding that UCC-3 subordination forms don't create the subordination - they just record it. You need the actual subordination agreement first. What's the second lender offering the first lender in exchange for subordination? Usually it's a fee or some other consideration.
0 coins
CosmicCrusader
•The second lender hasn't offered anything to the first lender yet. They seem to think we should just be able to file the UCC-3 subordination form and that's it.
0 coins
Carmen Ortiz
•Ha! That's not how it works at all. The second lender needs to sweeten the deal somehow. Maybe a subordination fee or partial paydown of the first loan.
0 coins
Andre Rousseau
•Right, and depending on your state, the subordination agreement might need specific language to be enforceable. Don't just wing it with a generic form.
0 coins
Zoe Papadakis
Before you go down the subordination rabbit hole, double-check that both UCC-1 filings actually cover the same collateral. Sometimes what looks like a priority dispute is actually just overlapping collateral descriptions. I've seen deals where the collateral schedules didn't actually conflict once you read them carefully.
0 coins
CosmicCrusader
•Good point - I should verify the exact collateral descriptions. Both filings mention manufacturing equipment but the serial numbers might be different.
0 coins
Jamal Carter
•Yeah definitely check that first. Also make sure the debtor names match exactly on both UCC-1s. Name mismatches can affect priority too.
0 coins
Zoe Papadakis
•Exactly. And if there are name discrepancies, you might need UCC-3 amendments before you even think about subordination.
0 coins
AstroAdventurer
Honestly, I'd run all these UCC filings through a document checker first before doing anything else. I learned this the hard way after missing a debtor name inconsistency that voided our entire security interest. Certana.ai has this tool where you upload your UCC-1s and UCC-3 forms and it cross-checks everything - debtor names, filing numbers, collateral descriptions. Caught three errors in my last deal that would have been disasters. Just upload the PDFs and it tells you exactly what doesn't match up.
0 coins
CosmicCrusader
•That sounds really useful actually. Are you talking about their automated verification system? How accurate is it?
0 coins
AstroAdventurer
•Yeah it's surprisingly thorough. It caught a middle initial discrepancy between our charter documents and UCC-1 that I never would have noticed. For subordination issues, it helps you see exactly what you're dealing with before you start negotiating.
0 coins
Mei Liu
•I've heard good things about that service too. Anything that prevents filing mistakes is worth it when you're dealing with millions in collateral.
0 coins
Yuki Yamamoto
Look, subordination is fundamentally about money. The first lender isn't going to give up their priority position for free. You need to get the second lender to offer something valuable - maybe 0.5% of their loan amount as a subordination fee, or agree to cross-collateralize some of their other assets. The UCC-3 subordination form is the easy part once you have the business deal worked out.
0 coins
CosmicCrusader
•That makes sense. I'll suggest the subordination fee approach to the second lender. Do you know what the typical range is for those fees?
0 coins
Yuki Yamamoto
•Usually 0.25% to 1% of the subordinated amount, depending on the risk. Higher for equipment loans, lower for real estate.
0 coins
Liam O'Sullivan
•Sometimes it's a flat fee instead of percentage. I've seen $10K-$50K subordination fees on deals like this.
0 coins
Amara Chukwu
Just went through this nightmare myself with SBA equipment financing. Took 3 months to get everyone to agree on subordination terms. The worst part was the second lender kept changing their requirements for the UCC-3 subordination form language. Make sure you get everything in writing before you start the filing process.
0 coins
CosmicCrusader
•Three months?! We don't have that kind of time. What finally broke the logjam in your situation?
0 coins
Amara Chukwu
•The borrower offered to personally guarantee part of the first lender's exposure. That gave them enough comfort to subordinate.
0 coins
Giovanni Conti
•Personal guarantees can definitely help but they add a whole other layer of complexity to the deal structure.
0 coins
Fatima Al-Hashimi
Have you considered partial subordination instead of full subordination? Sometimes you can get the first lender to agree to subordinate only up to a certain dollar amount or for specific pieces of equipment. The UCC-3 subordination form can be drafted to reflect those limitations.
0 coins
CosmicCrusader
•I hadn't thought of partial subordination. That might be more palatable to the first lender. How do you structure that in the filing?
0 coins
Fatima Al-Hashimi
•You specify the exact collateral or dollar amount being subordinated in the UCC-3 form. The rest of their security interest maintains its original priority.
0 coins
NeonNova
•Partial subordination is smart but make sure your state's UCC office can handle that level of detail in the filing. Some states are picky about subordination language.
0 coins
Andre Rousseau
Don't forget about timing issues with UCC-3 subordination forms. If you file the subordination but the underlying agreement gets modified later, you might need additional UCC-3 amendments. The filing needs to accurately reflect the current subordination arrangement at all times.
0 coins
CosmicCrusader
•Good point about timing. Should we wait until the subordination agreement is completely finalized before filing the UCC-3?
0 coins
Andre Rousseau
•Absolutely. File the UCC-3 subordination form only after all parties have signed the subordination agreement. Otherwise you risk having a filing that doesn't match the actual deal terms.
0 coins
Dylan Campbell
This might be stating the obvious, but have you confirmed that subordination is actually necessary? Sometimes lenders think they need first priority when they really just need adequate security. If the equipment value supports both loans, maybe the second lender would accept a junior position with additional collateral or guarantees.
0 coins
CosmicCrusader
•The second lender's loan committee apparently requires first position as a condition of approval. Not much flexibility there unfortunately.
0 coins
Dylan Campbell
•That's tough. Sounds like they're pretty rigid about their requirements. You might need to shop for a different second lender if the subordination doesn't work out.
0 coins
Sofia Hernandez
•Yeah some lenders are just inflexible about priority. It's frustrating but that's their risk appetite.
0 coins
Dmitry Kuznetsov
One last thought - if you do get the subordination agreement worked out, triple-check the UCC-3 subordination form before filing. I've seen deals blow up because someone transposed a filing number or misspelled a debtor name on the subordination filing. For complex deals like this, I always use document verification tools to make sure everything aligns perfectly. Certana.ai's system is great for catching those kinds of errors before they become expensive problems.
0 coins
CosmicCrusader
•Thanks for the reminder about double-checking everything. With this much money involved, we can't afford any filing mistakes.
0 coins
Dmitry Kuznetsov
•Exactly. The verification tools are especially helpful for subordination because they check consistency across multiple UCC forms. Worth the peace of mind.
0 coins
Ava Thompson
Update us on how this turns out! I'm dealing with a similar subordination issue on a healthcare equipment deal and curious what approach works best.
0 coins
CosmicCrusader
•Will do. Hopefully we can get something worked out this week. The subordination fee approach seems like our best bet right now.
0 coins
Ava Thompson
•Good luck! These priority disputes are never fun but usually there's a solution if everyone's willing to compromise a little.
0 coins