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UCC Article 9 Amendments Colorado Executive Summary Outline

I.    Background –Amendments 

        A.    Extensive restatement of Article 9 in 2001 

        B.    Several issues relating to filing system, mostly relating to individual debtor names, began to result in non-uniform amendments 

        C.    Amendments proposed with a July 1, 2013 effective date and were adopted in Colorado during the last legislative session 

        D.    The more significant amendments change the law; other changes are amendments to the official comments 

        E.    The Official Comments are not laws and court has the power to disregard them, but they are normally useful to apply the statute to particular circumstances

II.    UCC Filing System 

        A.    Perfection by filing UCC financing statement for perfecting security interest most kind of personal property 

        B.    Central filing with Secretary of State generally (exceptions for possessory security interests, control, and fixtures) 

        C.    Colorado has electronic filing only

        D.    First-to-file is general rule for priority 

        E.    Filings are indexed under “name” of debtor

        F.    Therefore, file using the debtor’s correct name

III.    Individual Debtor’s Name

        A.    Issue is important for business loans to individuals 

        B.    2001 UCC Article 9 amendments gave no guidance 

        C.    The issue is that individuals sometimes have more than one name 

        D.    If a search of the debtor’s “correct” name using the state’s standard search logic does not show the name used on financing statement, the filing is ineffective 

        E.    Some Unfortunate Results – Example: In re Miller  

                1.    Driver’s license, social security card, deed to his residence, federal income tax returns – “Bennie A. Miller” 

                2.    Birth certificate – “Ben Miller” 

                3.    Bankruptcy Court held that “legal name” was the name on birth certificate and therefore was required by UCC

                4.    Search using Illinois’s standard search logic under “Ben” did not show “Bennie” filing; therefore filing under “Bennie” was ineffective 
    
                5.    Bankruptcy Court reversed by U.S. District Court  holding that “Bennie A. Miller” was sufficient for UCC financing statement purposes because generally used for many years (driver’s license, Social Security card, tax returns, other official documents) and that one’s “name” for UCC Article 9 filing purposes is not necessarily one’s birth certificate name 

        F.    Banking community began to push for bright line driver’s license test and non-uniform legislation was introduced

IV.    Proposed Amendments: Two Alternatives for Individual Names 

        A.    “Only if” option (Alternative A) 

                1.    The only correct “name” for filing purposes is the name on the debtor’s unexpired driver’s license or other specified document issued by the debtor’s state of residence 

                2.    When debtor does not have a current driver’s license, use “individual name” (fallback as under current Article 9) 

        B.    “Safe harbor” option (Alternative B) 

                1.    Driver’s license name is sufficient (Colorado legislation pending to allow name on state ID card to be sufficient) 

                2.    Or “individual name” (fallback as under current Article 9) 

                3.    Or surname and first personal name even if debtor has a driver’s license 

        C.    Adoption 

                1.    35 states have adopted the revisions to date 

                2.    Most states have adopted the “only if” option 
    
                3.    A minority of states, including  Colorado, have adopted the “safe harbor” option 

        D.    Compliance        

                1.    Try to get verification of name consistently used by borrower        

                2.    Principally use driver’s license         

                3.    Other identification card 

                4.    Multiple searches by someone understanding search logic

V.    Registered Organization Amendments 

        A.    Registered Organizations are corporations, limited liability companies, limited partnerships, limited liability limited partnerships, and now with the amendments, Delaware statutory trusts and Massachusetts Business Trusts 

        B.    Examine official records of the state of debtor’s incorporation or formation, which is the location of the debtor, for the “public organic record,” which means the document filed to incorporate, form, or organize an entity 

        C.    Don’t accept the “name” on the Secretary of State’s website or even a good standing certificate

        D.    General Partnerships and Limited Liability Partnerships are not registered organizations 

                1.    Proper name is its organizational name typically shown in its partnership agreement 

                2.    If no organizational name, use names of persons (including registered organizations) comprising the partners 

                3.    Conservative approach is to file under both the organizational name and the names of the partners 

        E.    Trusts that are not registered organizations (i.e., not Massachusetts or Delaware business trusts) must be the name of the trust itself, or if the trust has no name, the name of the settlor

VI.    “Information Statement” Replaces “Correction Statement” 

        A.    Secured parties as well as debtors file an “information statement” rather than a “correction statement” if a secured party believes someone has filed a financing statement or financing statement amendment, including a termination, without authorization or entitlement to do so 

        B.    An information statement has no legal effect, but gives notice and triggers a duty of inquiry 

        C.    An information statement cannot be used by a secured party to correct a filing (need to file a financing statement amendment)

VII.    Foreclosures Over Internet 

        A.    New Comment 2 to Section 9-610 advises that disposition over the internet is allowed if commercially reasonable

        B.    A new addition to Comment 2 to Section 9-613 states that a notification of an electronic (internet) disposition satisfies the “time and place” notice requirements if it states: (a) the time when disposition is scheduled to begin and (b) the electronic location (e.g. the URL) or other internet address where the site of the public dispositions can be accessed

VIII.    Other Amendments 

        A.    A new comment to UCC §9-322 suggests that a debtor’s subsequent ratification of the filing of a UCC financing statement will be sufficient for the date of filing to be effective for purposes of perfection of the security interest despite no previous authorization

        B.    If an entity changes its state of incorporation, i.e., its location, perfection continues for four months after the change in newly acquired collateral (previously perfection was immediately lost in newly-acquired collateral)

        C.    “Certificates of Title” revised to comply with practice of electronic records 

        D.    §4-9-105 provides a safe harbor for control of electronic chattel paper 

        E.    Type of entity, jurisdiction of organization and organization I.D. number no longer required