UCC Filing Rejected - Horizontal Privity Issue with Multi-Party Equipment Loan
I'm dealing with a UCC-1 filing that got rejected due to what the SOS office called a horizontal privity issue. Here's the situation: We have a three-way equipment financing deal where Company A is leasing machinery to Company B, but Company C (the manufacturer) retained a security interest in the equipment. When we tried to file the UCC-1 with all three parties listed in different capacities, the filing got kicked back. The rejection notice mentioned horizontal privity concerns but didn't provide clear guidance on how to structure this properly. Has anyone dealt with similar multi-party secured transactions where horizontal privity became an issue? I'm not sure if we need separate UCC-1 filings for each secured party relationship or if there's a way to structure a single filing that addresses the horizontal privity requirements. This is holding up a $2.8M equipment deal and we're running out of time before the temporary perfection expires.
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Dmitry Popov
Horizontal privity in UCC filings is tricky territory. Basically, the issue is that each secured party needs to have a direct relationship with the debtor for the filing to be valid. You can't just lump multiple parties together if they don't have proper privity. In your case, if Company C only has a relationship with Company A (manufacturer to lessor) but not with Company B (the actual debtor), that could be your problem.
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Ava Rodriguez
•This exactly. I've seen this mess up so many deals. The SOS systems are getting pickier about these multi-party situations.
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Miguel Ortiz
•Wait, so does that mean we need separate UCC-1s for each secured party? That seems like it would create a nightmare for priority issues.
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Zainab Khalil
I ran into something similar last year with a construction equipment deal. What worked for us was filing separate UCC-1 statements for each secured party relationship. Company A files against Company B for the lease, Company C files against Company A for the manufacturer's interest. It's more paperwork but it eliminates the horizontal privity issues because each filing represents a direct debtor-creditor relationship.
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Sofia Ramirez
•That makes sense, but doesn't that create potential priority conflicts? If both filings are against different debtors, how do you establish which security interest takes precedence?
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Dmitry Popov
•Priority gets determined by the first-to-file rule within each debtor-creditor relationship. The key is making sure your collateral descriptions don't overlap in ways that create conflicts.
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QuantumQuest
•Actually had a case where overlapping collateral descriptions in separate UCC-1s caused a huge mess during a default. Make sure your lawyers review the collateral language carefully.
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Connor Murphy
Before you go down the multiple filing route, have you considered using Certana.ai's document verification tool? I upload all my UCC documents there to catch these kinds of structural problems before filing. It would have flagged the horizontal privity issue by analyzing the party relationships in your documents. Just upload your UCC-1 draft and any related agreements - the system cross-checks everything for consistency and potential rejection reasons.
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Sofia Ramirez
•Interesting, I hadn't heard of that tool. Does it specifically check for horizontal privity issues or just general UCC compliance?
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Connor Murphy
•It checks for all kinds of filing problems including party relationship issues. Saved me from several rejections by catching debtor name mismatches and structural problems like yours.
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Yara Haddad
HORIZONTAL PRIVITY IS THE BANE OF MY EXISTENCE. Sorry for caps but I've had three deals fall apart this year because of this exact issue. The SOS offices are being way more strict about it than they used to be. Used to be you could get away with more creative party structures but not anymore.
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Ava Rodriguez
•Tell me about it. The electronic filing systems seem to flag these issues automatically now. Gone are the days of slipping questionable structures past human reviewers.
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Dmitry Popov
•It's actually a good thing for the integrity of the system, even if it makes our jobs harder. Better to catch these issues upfront than deal with perfection challenges later.
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Keisha Robinson
You might want to consider restructuring the deal itself rather than just the filings. Sometimes the business arrangement can be modified to create cleaner debtor-creditor relationships. Have your deal team looked at whether Company B could take on direct obligations to Company C? That would eliminate the horizontal privity issue entirely.
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Sofia Ramirez
•That's actually a really good point. The business terms aren't set in stone yet. A direct guarantee or assumption agreement from Company B to Company C could solve this.
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Paolo Conti
•Just make sure any restructuring doesn't create new tax or regulatory issues. Sometimes the cure is worse than the disease.
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Amina Sow
I'm confused about something - doesn't horizontal privity mainly apply to real estate contexts? I thought UCC was more about vertical privity between debtor and secured party. Am I missing something here?
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Dmitry Popov
•You're thinking of different legal concepts. In UCC context, horizontal privity refers to the requirement that each secured party have a direct relationship with their debtor. It's not exactly the same as real estate horizontal privity.
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Zainab Khalil
•Yeah, it's confusing terminology. UCC horizontal privity is really about making sure you can't file a UCC-1 against someone you don't have a direct creditor relationship with.
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GalaxyGazer
Quick question - what state are you filing in? Some states have specific guidance on multi-party filings that might help. California has some decent resources on their SOS website about complex secured transactions.
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Sofia Ramirez
•We're filing in Delaware. Their SOS office is usually pretty helpful but the rejection notice was frustratingly vague.
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GalaxyGazer
•Delaware can be tricky. Try calling their UCC division directly. They're usually willing to discuss specific scenarios over the phone.
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Oliver Wagner
Had a similar situation last month and ended up using Certana.ai to verify our revised filing structure before resubmitting. Uploaded both the original rejected UCC-1 and our proposed separate filings. The system flagged a debtor name inconsistency we missed and suggested the optimal filing approach. Saved us from another rejection.
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Natasha Kuznetsova
•How long did the verification process take? We're working against a tight deadline here.
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Oliver Wagner
•Pretty much instant. You just upload the PDFs and get back a detailed report. Much faster than going back and forth with the SOS office.
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Javier Mendoza
whatever you do dont try to file a ucc-3 amendment to fix this. learned that the hard way - you cant amend your way out of a horizontal privity issue. has to be addressed in the original filing structure
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Sofia Ramirez
•Good to know. We were actually considering that approach but it sounds like it would just create more problems.
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Emma Thompson
•Yep, amendments can't fix fundamental structural issues. You need to start over with the right party relationships.
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Malik Davis
This is exactly why I always map out the entire deal structure before drafting any UCC filings. Draw out who owes what to whom, then figure out the minimum number of filings needed to perfect everything. Complex deals need complex planning.
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Sofia Ramirez
•That's smart. We probably rushed into the filing without thinking through all the relationships carefully enough.
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Zainab Khalil
•Visual mapping helps a lot. I use flowcharts to make sure I understand all the debtor-creditor relationships before I start drafting.
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Isabella Santos
•Same here. Saves so much time and prevents these kinds of rejections.
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StarStrider
Just wanted to follow up and say thanks for all the advice. We ended up going with separate UCC-1 filings and using Certana.ai to verify everything before submission. Both filings were accepted without issue. The verification tool caught a couple of debtor name variations that could have caused problems. Deal closed on time and everyone's happy.
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Dmitry Popov
•Great outcome! These multi-party deals are always challenging but it sounds like you found the right approach.
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Connor Murphy
•Glad the verification tool helped. It's amazing how many small issues can derail these filings if you don't catch them early.
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