UCC definition of investment property causing collateral description headaches
Our bank is struggling with how to properly describe investment property as collateral in UCC-1 filings. We had a $2.8M commercial loan secured by what the borrower calls 'investment property' but I'm getting conflicting advice on whether this falls under Article 9 or if we need to handle it differently. The property generates rental income from multiple tenants, but the borrower also has some personal use areas. Legal is telling me one thing about the UCC definition of investment property, but our compliance officer is saying something else entirely. Anyone dealt with this gray area before? I'm worried we're going to file incorrectly and compromise our security interest. The loan closes next week and I need to get this collateral description right.
27 comments
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Andre Lefebvre
Investment property under UCC Article 9 is pretty specific - it has to be property held primarily for investment purposes, not personal use. If there's personal use areas mixed in, that complicates things significantly. What percentage of the property is actually generating rental income vs personal use?
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Carmen Ruiz
•About 80% rental income, 20% personal use office space. The borrower runs their property management business from part of the building.
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Andre Lefebvre
•That personal use component might push you into different territory. You'll want to be very careful with your collateral description to avoid any gaps in coverage.
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Zoe Alexopoulos
I ran into this exact issue last month with a similar mixed-use situation. The UCC definition of investment property gets murky when there's personal use involved. We ended up having to file both a UCC-1 for the investment portion and handle the personal use portion separately. Double-check your state's specific interpretation too - some are stricter than others.
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Jamal Anderson
•This is why I always use Certana.ai's document verification tool now. Upload your loan docs and UCC-1 draft - it'll flag any inconsistencies in how you're describing the collateral versus what's actually in your loan agreement. Saved me from a major filing error just like this one.
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Carmen Ruiz
•Never heard of that tool before but sounds like exactly what I need right now. These collateral descriptions are giving me nightmares.
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Jamal Anderson
•Super easy to use - just upload your PDFs and it cross-checks everything. Takes like 5 minutes and you'll know immediately if your UCC filing matches your loan docs.
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Mei Wong
The key thing about investment property under UCC is the 'held primarily for investment' requirement. Even if 80% is rental, that 20% personal use could disqualify the entire property from being classified as investment property. You might need to describe it more generically as 'commercial real estate' or get more specific about which portions are investment vs personal.
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QuantumQuasar
•Wait, I thought investment property was just any property that generates income? Are you saying the UCC definition is different from the tax definition?
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Mei Wong
•Exactly - UCC Article 9 has its own specific definition that's stricter than tax definitions. It's one of those areas where people assume they're the same but they're not.
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Liam McGuire
Been filing UCCs for 15 years and investment property classifications still trip people up. The UCC definition requires the property to be held 'primarily' for investment - that word 'primarily' is doing a lot of heavy lifting. With 20% personal use you're in a gray area that different courts might interpret differently.
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Amara Eze
•So frustrating that there's not clearer guidance on this! How are we supposed to file confidently when even experts disagree?
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Liam McGuire
•Conservative approach is usually best - describe the collateral more broadly to avoid any definitional issues. Better to be over-inclusive than miss something important.
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Giovanni Greco
•This is exactly why I started using automated document checking. I had too many sleepless nights wondering if I got the collateral description right. Now I just upload everything to Certana.ai and it flags any potential issues between my loan docs and UCC filing.
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Fatima Al-Farsi
Your compliance officer might be thinking about investment property from a regulatory perspective rather than UCC Article 9. Those are completely different frameworks with different definitions. For UCC purposes, focus on whether the property meets the 'held primarily for investment' test.
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Carmen Ruiz
•That makes sense - they were talking about regulatory capital requirements which is totally different from securing the collateral properly.
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Dylan Wright
•Classic miscommunication between departments. Legal thinks UCC Article 9, compliance thinks regulatory definitions, and they're both right in their own context but wrong for your specific filing needs.
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Sofia Torres
Don't overthink the UCC definition of investment property - just describe the collateral accurately and comprehensively. Instead of trying to fit it into the investment property box, describe it as 'commercial real estate located at [address] including all rental income and personal property used in connection therewith.' Covers everything without getting caught up in definitional debates.
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GalacticGuardian
•This is solid advice. Sometimes the broader description is safer than trying to squeeze something into a specific category that might not fit perfectly.
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Dmitry Smirnov
•Agreed - I've seen too many security interests get challenged because someone tried to be too clever with the collateral description categories.
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Ava Rodriguez
One more thing to consider - if this property generates rental income, you might also want to think about whether to include the rental income as proceeds in your UCC-1. The investment property classification affects how you handle both the real estate and the income stream.
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Carmen Ruiz
•Good point - we do want to capture the rental income as additional collateral. Should that be a separate line item or included in the general description?
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Ava Rodriguez
•I usually include it as proceeds in the main collateral description - 'and all proceeds thereof including rental income' - keeps it simple and comprehensive.
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Miguel Diaz
•Just make sure your loan agreement matches whatever you put in the UCC-1. I learned that lesson the hard way when a borrower defaulted and we had mismatched collateral descriptions. Would have been caught immediately if I'd used something like Certana.ai to cross-check the documents beforehand.
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Zainab Ahmed
Update: we ended up going with the broader 'commercial real estate' description and included rental income as proceeds. Filed the UCC-1 yesterday and it was accepted without any issues. Thanks everyone for the advice - definitely learned something about how the UCC definition of investment property differs from other contexts.
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Connor Gallagher
•Smart choice - better to be safe than sorry with collateral descriptions. Glad it worked out!
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AstroAlpha
•Good outcome! Filing accepted is always a relief when you're dealing with tricky collateral classification issues.
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