UCC Article 9 secured transactions - basic overview needed for loan officers

This is helpful but what about fixtures? I thought those had special rules under Article 9?

Yes, fixtures are covered but they have their own perfection requirements. You typically need a fixture filing on the real estate records, not just the regular UCC filing system.

That's exactly what I needed - the four main buckets. So when we're doing AR factoring, Article 9 determines both our filing requirements AND what happens if the debtor defaults?

Exactly. Article 9 tells you how to perfect your interest in the receivables (UCC-1 filing) and gives you the roadmap for collecting if things go sideways. Just make sure your security agreement covers all the bases.

Be careful with AR factoring though - you need to get the notification and control procedures right or your perfection might be challenged later.

This confused me for months! I kept thinking leases were separate from secured transactions but Article 9 catches a lot of lease arrangements too.

Right - if the lessee has an option to buy for nominal consideration or the lease term covers most of the equipment's useful life, Article 9 treats it as a secured sale.

That sounds useful - is it mainly for catching filing errors or does it help with the Article 9 compliance side too?

Primarily filing accuracy, but that's huge for Article 9 compliance since improper filings can mess up your perfection. Better to catch name discrepancies before you file than discover them during a bankruptcy proceeding.

We've had UCC-1s rejected because of tiny debtor name differences that we missed in manual review. Automated checking would have saved us the refiling hassle.

PMSI = purchase money security interest, for anyone following along. Gets super priority if you perfect within 20 days of debtor receiving the goods.

We do some inventory financing for auto dealers. I assume that falls under the PMSI rules?

Could be, but inventory PMSI has extra notification requirements to other secured parties. Much more complex than equipment PMSI. You'll want to review those rules carefully.

Good point. Some states were slow to adopt the revisions so you might see different effective dates depending on jurisdiction.

The electronic records provisions were huge for modern financing. Hard to imagine doing asset-based lending without being able to perfect interests in electronic chattel paper.

Are you talking about things like notice periods for foreclosure sales and commercially reasonable disposition requirements?

Exactly. Article 9 requires commercially reasonable sales but doesn't define what that means. Your security agreement should spell out acceptable procedures to avoid disputes later.

We learned this the hard way when a borrower challenged our equipment sale as not commercially reasonable. Now we're much more detailed in our security agreement language.

That's a good perspective. The balance between creditor rights and debtor protections is really central to how Article 9 works.

I hadn't thought much about the debtor protection angle. Is that something we need to explain to borrowers upfront?

Not required but it's good practice. Helps borrowers understand their rights and can prevent disputes down the road.

That's a great framework. Attachment happens when we get our signed security agreement and advance funds, right?

Attachment requires: signed security agreement, value given, and debtor has rights in the collateral. Usually happens at closing but can be delayed if collateral is acquired later.

And perfection is typically your UCC-1 filing, though some collateral types require possession or control instead of filing.

Good to know. We don't do aircraft or ship financing but I could see IP issues coming up with some of our tech company borrowers.

Copyright and trademark security interests can be tricky - federal registration systems sometimes preempt Article 9 filing requirements.