Lenders perfect their security interests to ensure that no other creditor, party in interest, or bankruptcy trustee will be able to claim the same collateral. The perfection of a security interest allows secured parties to have priority over other parties regarding the collateral. Thus, perfection is a crucial part of a secured transaction and typically achieved through the use of financing statements such as a UCC-1.
UCC stands for “Uniform Commercial Code” which is the model text for many laws in California related to sales of goods, secured transactions and commercial paper. Perfection of a security interest in most types of collateral is usually accomplished by filing a UCC-1 financing statement. The financing statement is filed with the California Secretary of State which provides notice of the filing party’s security interest in the collateral.
In many cases, by entering into a security agreement, a debtor authorizes the filing of a financing statement for the collateral described in the security agreement. A financing statement may be filed without the debtor’s signature if the debtor authorizes the filing. The UCC financing statement must contain both the name and mailing address of the debtor and secured party. It must also indicate whether the debtor is an individual or an organization while identifying the type of organization (i.e., corporation, partnership, LLC), the state or jurisdiction of organization and a registration number.
A financing statement must contain an adequate description of the collateral but, unlike a security agreement, it may use a generic description of collateral. A description of collateral in a security agreement as “all the debtor’s assets” or “all the debtor’s personal property” or using words of similar import does not reasonably identify the collateral. However, a financing statement sufficiently indicates the collateral if it has a description of the collateral or if it indicates that it covers all assets or personal property of the debtor.
The debtor’s correct name is significantly important to the validity of the financing statement since state filing records are indexed in alphabetical order by name. Yet, it is noteworthy that many secured parties make errors simply related to providing a sufficiently specific and correct name on the financing statement. If the name on the statement is incorrect, the statement will not provide adequate notice of the true and correct party claiming the security interest and perfection will fail. If the debtor is a “registered organization” created under California state law, then the name on the financing statement must match the name of the debtor as registered with the State of California.
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