UCC termination vs security agreement release - which comes first?

This is exactly right. Think of it like a mortgage - you pay off the mortgage (security agreement satisfied) but the lender still needs to file a satisfaction/release with the county to clear the public record. Same concept with UCC filings.

Wait, so the security agreement stays in effect even after I pay off the loan until they file the termination? That seems backwards.

No, the security agreement is satisfied when you pay off the debt. But the UCC filing stays on the public record until they file a termination statement. That's why you want to make sure they actually file the UCC-3.

Oh wow, that's exactly what I'm worried about. How long did it take to get resolved?

Almost two months of back and forth between the new bank, the acquiring bank's legal department, and the SOS office. They had to track down the original loan documents and file an amended termination. Cost me a deal because the buyer got tired of waiting.

This happens more often than people think. Lenders get sloppy with the follow-through on terminations, especially when loans are sold or banks merge.

That sounds helpful - did it show you exactly what was wrong with the names?

Yeah, it highlighted that my company name on the security agreement had 'LLC' but the UCC-1 just had 'L.L.C.' with periods. Small difference but apparently enough to cause issues with the termination filing.

Those little punctuation differences can definitely mess things up. I've seen terminations get rejected for exactly that kind of mismatch.

This is good advice but seems like a lot of work. Shouldn't the lender just handle all this automatically?

They should, but they don't always. It's your equipment and your credit that gets affected if there are problems later. Taking 30 minutes to verify everything is worth it to avoid months of problems.

I learned this the hard way. Always verify the termination was actually filed. The lender's internal systems might show the loan as paid off but that doesn't mean they filed the public termination.

You're right, I'd rather spend the time upfront than deal with problems later. I'll definitely request copies of everything.

We did add some equipment to the loan about 18 months ago. Would that have required an amendment?

Probably, unless the original collateral description was broad enough to cover the new equipment. You should check if there are any UCC-3 amendments on file for your loan.

You can search the SOS database online to see all the filings related to your company. Look for any amendments that reference the same original filing number.

How did you catch that error before they filed it?

The document verification tool showed me the mismatch between the payoff letter, the proposed termination, and the original UCC-1. All three had slightly different entity names. Once I saw it laid out side by side, it was obvious there was a problem.

This is why I always insist on reviewing the termination statement before the lender files it. Too many ways for them to mess up the details.

Perfect analogy with the mortgage satisfaction. That makes it really clear.

Exactly. The security agreement creates the lien, the UCC-1 perfects it, and the UCC-3 terminates the perfection. All separate legal steps.

Good point. I'll make sure to stay on top of them about filing it quickly.

I usually give lenders 30 days max before I start following up. Most can get it done within a week or two if they're organized.

Some loan agreements actually specify a timeframe for filing the termination after payoff. Worth checking your agreement to see if there's a commitment there.

Thanks everyone, this has been really helpful. I feel much more confident about what to ask for and what to verify.

Glad we could help! These UCC termination issues come up all the time but they're totally manageable if you know what to look for.

Feel free to update us on how it goes. Always good to hear success stories about getting these things handled properly.