What happens if a UCC lapses - lender calling loan due early

Thanks, I'll dig through the loan paperwork. The lender is saying they have the right to protect their interests but demanding full payment seems extreme when we haven't missed any payments.

Yeah that's pretty aggressive. Most lenders would just file a new UCC-1 and move on, especially with a performing loan.

That's what I'm wondering too. This is a commercial lender, not some small operation. How do you just forget to file a UCC-3 continuation?

Happens more than you'd think. Lenders get sloppy with their filing systems, especially when they sell loans or merge with other banks. The new servicer sometimes doesn't have good tracking.

I've seen this exact situation before. Bank sold our loan to another servicer and the new guys had no idea about the continuation deadline. Luckily we caught it ourselves.

That's what I would expect from a professional lender. Ours is acting like we somehow caused this problem.

Some lenders get really paranoid about unsecured exposure. They'd rather demand payment than admit they screwed up their filing calendar.

Honestly, I'd be shopping for a new lender at this point. This kind of operational incompetence doesn't inspire confidence.

That sounds useful for the future. Right now I need to figure out how to deal with this immediate demand for payment.

Yeah, definitely focus on the current crisis first. But for ongoing monitoring, being able to upload PDFs and get instant verification of all your UCC documents would prevent this kind of surprise.

Good point about prevention. Most borrowers don't realize they should be tracking their lender's filing status too.

Depends entirely on the loan agreement language. If there's an acceleration clause tied to security interest maintenance, they might have grounds. But most courts would look unfavorably on a lender trying to accelerate due to their own filing negligence.

I'm hoping that's the case. We've been perfect borrowers and this is entirely their administrative failure.

Easy to say when you have that much cash sitting around. Most of us need financing for major equipment purchases.

Fair point. I just got burned too many times by lender incompetence to trust the process anymore.

Yeah, I think that's probably the smart move here. Just hate to spend money on lawyers when this whole thing is the lender's fault.

I get that, but compared to potentially having to pay $180k early, a few thousand in legal fees is nothing. Plus if the lender is overreaching, the attorney might be able to get them to back down with a strongly worded letter.

Definitely get a lawyer. Had a similar situation and the attorney got the lender to not only drop the acceleration demand but also pay our legal fees for their screw-up.

That's exactly what I want to know. This should have been on their calendar 6 months ago.

Right? Professional lenders have tickler systems for this stuff. Either they're incredibly disorganized or they're using this as an excuse for something else.

That's encouraging to hear. How long did the whole process take to resolve?

About 6 weeks from start to finish. Most of that was the attorneys going back and forth. Once they realized we weren't going to just roll over and pay, they became much more reasonable.

This is pretty common. Lenders make demands hoping borrowers will just comply without questioning their legal authority.

They can file a new UCC-1 but it only perfects going forward, not retroactively. During the lapse period, they're unsecured. That's why they're freaking out.

Got it. So if the borrower had sold the equipment during the lapse period, the lender would have been SOL?

Exactly. Or if the borrower had filed bankruptcy during the lapse, the lender would be an unsecured creditor for that debt.

I'm definitely going to look into that for the future. Right now I just need to get through this crisis.

Absolutely handle the immediate issue first. But having a system that cross-checks all your documents would prevent future surprises like this.

Will do. Meeting with an attorney tomorrow to review the loan agreement and figure out our options.

Good luck. Hopefully they're just bluffing and will back down once you show you're not going to be pushed around.