Think your business credit is in good shape for loan approval? There could be one major roadblock in your path: an outdated UCC filing.
This signals to lenders that another party already has claims to your company’s assets and increases your business credit risk. So, how do you remove a UCC filing? This article covers everything you, the debtor, need to know about UCC termination, also known as UCC-3 termination.
What does a UCC termination mean?
Here’s an interesting scenario that comes up more frequently than people realize: A company (let’s call them ABC Inc.) enters into debt via a loan or lease with a vendor (let’s call them XYZ Services). XYZ Services properly files a UCC-1 covering the loan or lease to secure their assets.
A few months or years down the road, the loan or lease between the two is completed, and ABC Inc. has no further outstanding debt or liabilities with the secured vendor, XYZ Services. Nor does ABC Inc. plan to incur any in the future. ABC Inc. tries to contact someone at XYZ Services to request they file a UCC-3 termination on the now-expired loan or lease, but they can’t find the right person, or that person refuses to help. Can ABC Inc., the debtor in this transaction, file a UCC-3 termination themselves on the now-completed lien?
If you ever find yourself in that frustrating situation, the answer is: Yes, you can — providing there is no existing obligation to the lender. This is provided for in Section 9-513 of the Uniform Commercial Code.
First, the debtor must send an authenticated demand to the secured party. The demand should be sent to the name/address of the secured party as indicated on the financing statement. The secured party has 20 days to either terminate the filing or send a termination statement to the debtor that the debtor can then file. If this does not happen within the 20-day time frame, the debtor may file a UCC-3 termination statement. The UCC-3 will remove the UCC-1 filing and terminate the lien on your company’s assets.
Here is the official description of the requirements, as given in the Uniform Commercial Code, section 9-516:
9-516 (Official Comment 5)
5. Address for Secured Party of Record. Under subsection (b)(4) and section 9-520(a), the lack of a mailing address for the secured party of record requires the filing office to reject an initial financing statement. The failure to include an address for the secured party of record no longer renders a financing statement ineffective. See section 9-502(a). The function of the address is not to identify the secured party of record but rather to provide an address to which others can send required notifications, e.g., of a purchase-money security interest in inventory or of the disposition of collateral. Inasmuch as the address shown on a filed financing statement is an "address that is reasonable under the circumstances," a person required to send a notification to the secured party may satisfy the requirement by sending a notification to that address, even if the address is or becomes incorrect. See section 9-102 (definition of "send"). Similarly, because the address is "held out by (the secured party) as the place for receipt of such communications (i.e., communications relating to security interests)," the secured party is deemed to have received a notification delivered to that address. See section 1-201(26).
Who files a UCC termination?
In a perfect scenario, the lender would remove a UCC filing once the debt had been repaid in full. Unfortunately, that’s not always the case. Just as with ABC Inc. from our example, the UCC-1 filing can remain in place even when the debt is paid off.
In these situations, you can file a UCC-3 termination yourself with your secretary of state. You must swear under oath that you’ve satisfied the debt in full and complete the UCC termination form.
To avoid these scenarios from jeopardizing your company’s credit rating in the first place, always submit a UCC-3 filing request with your lender immediately once the debt is settled.
Need assistance in lien management? Work with a trusted partner.
Unsure whether UCC filing has been placed on your business assets? You need to conduct a business credit report and keep track of regular UCC filing searches.
An outdated UCC filing still assigned to your business, needs to be removed — or risk harming your company’s ability to obtain financing, both now and in the future. Work with a trusted partner to ensure proper steps are taken to remove that lien.
Lien Solutions helps you with fast, comprehensive lien searches, intelligent automated filing, and expert lien management services through our award-winning iLien platform for UCC. By partnering with us, you’re safely guided by trusted, experienced professionals to ensure you quickly identify UCC filing discrepancies and address them before they further damage your business's financial health.
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