UCC repudiation definition - what happens when debtor challenges secured claim

This is exactly right. Repudiation attacks the security interest itself, not just the payment obligation. The debtor is essentially saying 'we never agreed to this collateral arrangement' which is different from 'we can't pay.' If they succeed, you could lose your secured status entirely.

Wait, so they can just say they repudiate and that makes the UCC filing invalid? That doesn't seem right. If the documents were signed and filed properly, how can they just back out of it later?

That's a good point about the entity name match. I'm going to pull our UCC-1 and compare it to their current certificate of incorporation. We did file 18 months ago so there's always a chance they've amended their name or structure since then.

Definitely check the name match. I've seen cases where the debtor changed their legal name by one word and the lender never caught it. If your UCC-1 shows the old name but they're now operating under a slightly different legal name, that could give them grounds to challenge perfection.

The Delaware SOS has a good online search tool where you can verify current entity names. Also check if they've filed any amendments to their articles of incorporation since your UCC-1 was filed.

That's interesting - I hadn't thought about using automated tools to cross-check the documents. How detailed is the comparison? Does it catch things like slight variations in collateral descriptions?

Yeah it's pretty thorough. You upload your security agreement and UCC-1 and it highlights any inconsistencies in debtor names, collateral descriptions, filing numbers, etc. Wish I'd used it before the borrower's attorney found the discrepancy first.

I feel your frustration but repudiation isn't automatic grounds to void a security interest. They still have to prove their case. The fact that they've been making payments actually works against them - it shows they've been accepting the terms.

Maybe but now the lender has to spend thousands on legal fees to defend something that should have been settled 18 months ago. It's ridiculous.

Been there on the legal fees. Our last UCC challenge cost us $15k in attorney fees even though we won. Sometimes I think borrowers do this just to drain your resources.

That's exactly what I'm thinking. They've been current on payments this whole time and suddenly their attorney is involved. I suspect they're trying to refi at a lower rate and need to challenge our lien to make it work.

If that's the case, you might want to consider negotiating rather than fighting. Sometimes it's cheaper to modify the terms than to litigate the repudiation claim.

This is the right approach. Most repudiation claims are fishing expeditions. If your paperwork is clean, they'll usually back down once they realize they can't win.

I'm going to do exactly this. Pull the complete file and compare everything line by line. Better to know now if there are any gaps than to find out during litigation.

Also check if your loan agreement has a clause that specifically addresses repudiation or challenges to the security interest. Some agreements include language that makes the borrower liable for legal fees if they unsuccessfully challenge the lien.

Our UCC-1 says 'all manufacturing equipment, machinery, and related fixtures now owned or hereafter acquired.' The loan was specifically for three pieces of equipment but we used broader language to cover potential additions.

That description sounds reasonable for equipment financing. It's specific enough to identify the type of collateral but broad enough to cover the actual equipment. The 'hereafter acquired' language is standard for equipment loans.

Yeah that doesn't sound overly broad to me. Manufacturing equipment is a pretty specific category. It's not like you said 'all personal property' or something crazy like that.

Good advice on getting counsel involved. I was thinking about responding directly but you're right that anything I say could be used against us later.

Definitely don't respond without counsel. Their attorney is probably hoping you'll say something that helps their case. Let the lawyers handle the communication.

Actually yes - this is exactly why I started using Certana.ai for all our UCC work. You can upload your entire portfolio and it will flag any inconsistencies across all your filings. Much better than trying to manually review 200 different files.

We do quarterly UCC audits internally but it's pretty time consuming. An automated tool would be way more efficient.

The key is to catch problems before borrowers do. Once they challenge a filing, you're already in a defensive position. Better to clean up issues proactively.

That's what I'm afraid of - even if we win, the legal costs could be substantial. What kind of settlement did you consider?

We looked at reducing the collateral scope or allowing them to pay down a portion of the loan to release some equipment. Anything that would have been cheaper than litigation.

But then you're rewarding bad behavior. If you settle, other borrowers will think they can pull the same trick.

That's a good point. I'll definitely post an update once we know more. Meeting with our attorney tomorrow to review the documentation.

Yeah please keep us posted. These repudiation cases are always educational for the rest of us dealing with UCC issues.