What this is: There is a misperception concerning what UCC3 Assignment filings accomplish. Basically, these filings have a limited purpose Under Article 9 of the UCC.
What this means: In this article we will explore the purpose and function of UCC3 Assignment filings, clarifying common misconceptions. We will explain how these filings authorize a new secured party to make amendments to a financing statement.
Are UCC3 Assignment Filings Actually ‘Assignments’?
The general definition of an “assignment” in business terms is “a written agreement for the transfer of one’s title, legal rights or property from one person to another.” Does an Article 9 UCC3 Assignment filing meet this definition? Actually, there is some confusion concerning what a UCC3 Assignment filing accomplishes.
What is the Purpose of a UCC3 Assignment Filing?
A UCC3 Assignment is an amendment filing that is an “assignment of powers” from one secured party (the assignor) to another secured party (the assignee). It is filed to authorize a new secured party to file any UCC3 amendments to the applicable financing statement.
Simply stated, a UCC3 Assignment authorizes another secured party (assignee) to file UCC3 amendment(s) to the initial financing statement. There is no transfer or reassignment of the collateral/security interest taking place by the filing of a UCC3 Assignment. By the filing of a UCC3 Assignment, a new/added secured party is given the right to amend the Financing Statement in the public record going forward. After this UCC filing is made, the assignee secured party now has the power/authorization to file any type of amendment necessary to maintain the initial financing statement on file with the filing office.
In addition to this, there are several reasons why there is a significant amount of confusion concerning how UCC Assignments actually work.
Can an Assignment Be Completed on an Initial UCC1 Financing Statement?
Yes, assignments can be reflected on a UCC1 Initial Financing Statement too. Those reviewing UCC filings should notice that there are “Assignor Secured Party’s Name” checkboxes on the UCC1 Addendum (UCC1Ad) and UCC1 Additional Party (UCC1AP) Forms. This is informing the public that the secured party(s) is the party listed on the face page of the UCC1 along with any additional secured parties (if any) included on the UCC1 Addendum and/or UCC1 Additional Party forms, are the secured parties. The party listed as the “Assignor Secured Party” is simply indicating who the secured party was prior to the UCC filing. If the “Assignor Secured Party’s Name” box is checked, this party is not a secured party of record and should not be indexed on the jurisdiction index by the filing office as a secured party. However, some jurisdictions do include the “Assignor Secured Party” as an additional secured party on the public record index even though they technically are not a secured party based on the checkbox indicating “Assignor Secured Party’s Name.”
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A Common Misunderstanding About UCC3 Assignments
A UCC3 Assignment does NOT assign the security interest in the collateral, in full or in part, to another secured party. Accordingly, on the surface, it is easy to see why some presume that a UCC3 Assignment means that the collateral described on the Financing Statement is now “transferred” or “turned over” from one secured party (assignor) of record to another secured party (assignee). It is easy to draw this conclusion since it seems logical based on the generally accepted definition of an Assignment. But, as mentioned above, a UCC3 Assignment results in the Assignee secured party having “…the right to amend the identified financing statement or the right to amend the identified financing statement with respect to some (but not all) of the collateral covered by the identified financing statement.” The collateral pledged in the security agreement is not what is being “assigned” in an Assignment filing.
UCC3 Assignment Filing Requirements
With a better understanding of what an Assignment conveys, what is required for an effective UCC3 Assignment filing? The following 3 requirements are clearly outlined in §9-514(b) of the UCC, except as otherwise provided in subsection (c):
- Identifies, by its file number, the initial financing statement to which it relates;
- Provides the name of the assignor; and
- Provides the name and mailing address of the assignee.
Additional Requirements for UCC3 Real Estate-Related Filings
Other requirements may be necessary where there are real estate-related filings. Under §9-514(c), where a record of mortgage has been filed as a Financing Statement, the correct method for filing an Assignment is stated as follows:
“An assignment of record of a security interest in a fixture covered by a record of a mortgage which is effective as a financing statement filed as a fixture filing under §9-502(c) may be made only by an assignment of record of the mortgage in the manner provided by law of this state other than [the Uniform Commercial Code].”
So, the next time you prepare a UCC3 Assignment for filing or review UCC search results that include UCC3 Assignments, you should have a clearer understanding about the effects of these types of UCC filings.
Can UCC3 Assignments and Secured Party Additions Serve the Same Purpose?
Interestingly, all of this raises another question: If a UCC3 Assignment filing empowers a new secured party to file amendments, why prepare and file a UCC3 Assignment? Could a UCC3 Secured Party Addition serve the same purpose? Actually, yes. In this instance, the UCC3 form enables the same type of outcome. A UCC3 Assignment and a UCC3 Secured Party Addition both add a secured party to the public record and either party may prepare and file future UCC3 Amendments.
And one more important note: Be aware that when reviewing the party in the secured party field, you may not be viewing the actual secured party involved with the transaction. Instead, the party listed on the UCC may be a secured party representative. Article 9 of the UCC makes clear that there is no requirement for a party acting in a representative capacity to indicate so on the financing statement (§9-502(a)(2)). Accordingly, you will sometimes see an indication that the person is acting in a representative capacity, and other times you may not. Therefore, the actual secured party for a Financing Statement may not be shown on the public record and the “secured party” listed on the financing statement may be a representative of the secured party, thus protecting the identity of the secured party.
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What is one example of a common error seen on UCC financing statements?
We still see UCC filings prepared with the entity name followed by “a Delaware Limited Liability Company” or “DBA” as though it were part of the name. If there is a desire to include a former name, name variation or trade name, insert that party name in the additional debtor name field on the financing statement. The only way to be sure you have the correct debtor’s name is to review the charter document and any amendments for registered organizations and usually the unexpired state-issued driver’s license or unexpired state-issued ID for individual debtors. The name on the UCC filings should be styled to match the name on these sources. Want to learn more? Read our article, UCC Financing Statements: 11 Mistakes to Avoid.
What is a UCC termination?
When a debtor has satisfied all debts owed and/or collateral has been returned to the lender, the lender typically files a UCC amendment to terminate the UCC financing statement that established the lender’s priority over the collateral. To read more, refer to our article, UCC Termination Statements Part 1: Preparing and Filing.
What is a ‘fixture,’ as defined by the UCC?
“Fixtures” is defined by UCC Section 9‐102(a)(41) as “goods that have become so related to particular real property that an interest in them arises under real property law.” It refers to items that are originally personal property but become attached to and part of real property in such a way that they are considered a permanent part of the property. The determination of whether an item is a fixture depends on factors such as the manner of attachment, the intent of the parties, the item's adaptability to the use of the property and any agreement between the parties involved. Refer to our article, Understanding UCC Fixture Filings and Their Impact on Business Transactions, for more information.
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.
