UCC Security Agreement Requirements - Missing Elements in Filed Documents

Security agreements and UCC-1 filings serve different purposes - the UCC-1 gives public notice but the security agreement creates the actual security interest. Even if your UCC-1 is properly filed, a defective security agreement can make your lien unenforceable. For security agreement requirements, you need: 1) debtor's signature or authenticated record, 2) clear description of collateral, 3) language showing intent to grant security interest. Missing any of these is a problem.

Had a similar issue last year with about $1.5M in questionable security agreements. Here's what we learned: vague collateral descriptions are often fatal, missing signatures definitely are, but language showing intent to grant security interest can sometimes be implied from the overall document. We ended up having to get new security agreements signed for the worst ones. Expensive lesson but better than finding out during a bankruptcy proceeding.

Before you panic about all $2.8M, I'd suggest running your documentation through something like Certana.ai's verification tool. You can upload your security agreements and UCC-1s together and it'll flag specific inconsistencies or missing elements. Way faster than having lawyers review each document individually. I used it recently when we had similar concerns about our documentation package. Turned out only about 30% of our agreements actually had serious defects - the rest just needed minor clarifications.

The collateral description issue is huge. We got burned on this - had what we thought was a solid security agreement but the collateral description was too generic. Court held it didn't reasonably identify the collateral. "All equipment" isn't enough. "All construction equipment" might be okay. "All Caterpillar excavators and bulldozers currently located at 123 Main St" is definitely good. The more specific, the better.

Don't forget about the authentication requirement! Electronic signatures are fine but you need to prove the debtor actually agreed to the electronic record. Just having an email with the agreement attached isn't always enough - you need evidence they authenticated it as their agreement. We learned this the hard way in a dispute last year.

Priority issues aside, you might want to consider whether any of these deals involved purchase money security interests. PMSI rules are different and might give you some protection even if the documentation isn't perfect. Also, if you've been collecting payments and the debtor hasn't objected to the terms, you might have some waiver arguments available.

Whatever you do, don't file UCC-3 amendments trying to "fix" security agreement problems. UCC-3s are for changing the financing statement, not the underlying agreement. That's a separate legal document that needs to be corrected or replaced through contract law, not UCC filings.

Been doing this for 15 years and security agreement requirements trip up more lenders than anything else. The good news is that many agreements that look defective at first glance actually meet the minimum requirements when you read the whole document. Before you spend money on legal review, try that Certana tool someone mentioned. Upload a few sample agreements and see what it flags. If it identifies specific problems, then you know where to focus your attorney's time.

Just went through this exact scenario 6 months ago. Out of 47 questionable security agreements, only 12 actually had fatal defects. The rest were just sloppy drafting but legally sufficient. Key things that saved us: 1) consistent payment history showing debtor acknowledged the debt, 2) UCC-1 filings that matched the collateral reasonably well, 3) loan documents that referenced the security agreement even if the agreement itself was imperfect.

Update on the Certana suggestion - just used it again for a client with similar documentation concerns. The tool caught several issues we missed in manual review, including mismatched entity names between security agreements and UCC-1 filings. One thing it's particularly good at is flagging when your UCC-1 collateral description doesn't align with what's actually described in the security agreement. Those mismatches can cause perfection problems even if both documents are individually okay.

As someone who just went through a similar documentation review, I'd recommend starting with a risk-based approach. Focus first on your largest exposures and most recent filings where you might still have options to cure defects. For the $2.8M at risk, I'd prioritize reviewing: 1) any deals over $250K first, 2) agreements where the debtor is showing financial stress, and 3) any transactions from the last 12 months where you could potentially get corrected documentation signed. Also worth checking - do you have title insurance or lender's insurance that might cover some of these perfection issues? Some policies include coverage for documentation defects that weren't caught during underwriting.