Though many economists say the recession is over and the economy is slowly improving, most lenders are still dealing with the financial fallout of defaulted commercial and consumer loans. Lenders who have a secured interest in a borrower’s personal property are in a far better position than unsecured lenders, but only if they comply with Article 9 of the Uniform Commercial Code (UCC).
Failure to properly comply with Article 9 procedures could prevent a lender from recovering a loan deficiency after disposing of the collateral securing a debt. In this series of articles, we will discuss Article 9 compliance and some frequently asked questions from lenders.
If you are a lender dealing with a defaulted loan secured by personal property such as inventory, equipment, receivables, or other non-real estate property, you should first familiarize yourself with the Article 9 procedural timeline and mark these dates on your calendar:
- Between 20 and 30 days prior to sending the notice of sale or other disposition of collateral, you should order UCC Searches (to include all tax, judicial and other liens) from the Secretaries of State where UCC Financing Statements are required to be filed under Article 9. Make sure to retain proof that the UCC Search was ordered. UCC Article 9-611(e)(1).
- At least 10 days prior to sale, you should complete and send the Approved Notification Form for Private Sales or Public Sales, signed by an authorized representative of the company or its lawyer, to the Debtors, Secondary Obligors, Security Interest holders, any other lienholders, listed on the UCC Search who may have an interest in the collateral, and to any other entities who properly requested that notice be given to them. Again, make sure to document who received notice and the method in which it was sent. UCC Article 9-102(a)(7), 9-102(a)(74), 9-611(a)(1)(c), and 9-612(b).
Before a lender can comply with the ‘timely notice’ requirement described in paragraph 2 above, the lender must identify interested parties. The UCC Search will help identify parties entitled to timely notice of an intended disposition of the collateral. Notice of an intended sale or other disposition of collateral should be sent to:
- The debtor (9-611(c)(1)),
- Any secondary obligor (9-611(c)(2)),
- Any other person who notified the lender that he claims an interest in the property (9-611(c)(1)(A)),
- Other secured parties who held perfected security interests in the property as of 10 days before the disposition (9-611(c)(1)(B)), and
- Any other secured parties who held secured interests in the collateral and which interests were perfected via statute, regulation, or treaty, such as a tax lien, a judicial lien, or lien subject to a certificate of title statute. (9-611(c)(3)(C)).
In our next installment, we will begin discussing frequently asked questions about the notice itself, including what information the notice should contain, whether the notice must be ‘executed’ and whether notice can be waived by an interested party. Check back soon to learn more, or call us and let our experienced attorneys guide you through the process of recovering and disposing of non-real estate collateral.
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