UCC-1 Agreement

UCC-1 stands for Uniform Commercial Code Form 1. It is not an agreement. It is just notice to the
world that one person claims that it has an interest in someone else's property, usually as collateral
for a debt. It is normally filed in the office of the Secretary of State in the state where the
debtor/borrower is located. In most cases, located means the state of incorporation for corporations,
the state of creation for limited liability companies and other entities, and the state of residence for
individuals.

There must be another agreement, called a security agreement that actually grants the security
interest and defines the terms of the deal. The security agreement and the UCC-1 combined are like a
mortgage on real estate. The mortgage is both the notice and the agreement for real estate, while for
personal property the notice and the agreement are separate.

The UCC-1 is a notice to the public not an agreement. The UCC-1 may be used to notice a lien created
by a security agreement of a loan for a home, car, and etc. but is not an agreement. The UCC-1 being a
"financing statement" is not an "agreement". Looking up the definitions of these two will clarify this
matter.

The importance of the UCC-1 to the secured party and other lenders/creditors is the first in time, first
in line priority. A UCC-1 notifies others of outstanding debt such as security agreement, summary
judgment lien, commercial or maritime lien and so forth. Collateral items may be listed directly.
Property, real and personal property, can be involved. All of this is for the protection of the secured
party and allow other possible lenders/creditors to be aware of outstanding unpaid debt that would
stand inline for collection of any new debt.

How long does a UCC-1 agreement last until it expires?

5 years from the date of recording. (6 years in Arizona)

In the absence of a security agreement can a UCC-1 filing be considered evidence of a legal security
interest?

Answer

If a security agreement is not completed and signed by the debtor, there is no security and a UCC
alone will not. If you know/believe there was a security agreement signed and cannot locate or get
access to it: a UCC-1 that has the "stamp" or other certification on it that the Secretary of State
"recorded" the UCC-1, then the creditor indeed has a security interest. You can call the Sec'y of State
and ask the procedure for filing a UCC-1. The process of doing so, and receiving a copy back with the
recording information on it, is called "perfecting a security interest". The office can also tell you how
to do a search, and the cost, to find out if the UCC-1 was recorded, and the cost of getting a copy. This
is all public information; in fact, the act of filing the UCC-1 in this "public" manner is part of the legal
requirement of perfecting. In addition to talking with the office of the Sec'y of State, you can learn
more, including the extent this is accurate in the state in question, by talking with business lawyers
and bank loan officers. Check the legal section of book stores too; many have a department with
books on various aspects of the law, including how to create a security interest.

How to Use a UCC Financing Statement

Assume that you intend to loan your friend $5,000. Your friend promises to pay you back by paying
$100 a month. To secure the debt, your friend offers his used 2002 Jeep Grand Cherokee with a Kelley
Blue Book value of $5,000. Your friend is known for financial trouble and you are worried that your
friend may promise his car to other creditors he plans on borrowing money from. If you fill out and file
UCC-1, the Uniform Commercial Code's financing statement, you can protect your interest in the jeep
from future creditors.

1 Enter into a security agreement with the debtor. The debtor is the person who owes you money;
you are the creditor. The security agreement is a contract between you and the debtor. It sets forth
each party's rights and responsibilities (such as payment requirements, what the collateral of the
agreement is, and what happens if the debtor defaults on the agreement).

2 Print and fill out UCC-1, the Uniform Commercial Code's financing statement. This document further
details your agreement. It lists the debtor's name and address, your name and address, and it
describes what the collateral is in the agreement. The collateral is what secures the debt. In our
example the Jeep is the collateral.

3 Check with your state as to where to file the UCC financing statement. Some states require you to
file this form with the Secretary of State; others require you to file it with the Superior Court. Call your
state's treasury department to determine where to file the statement.

4 File UCC-1 with the appropriate agency. Typically, you must pay a filing fee; the fee will vary from
state to state. Once filed, UCC-1 protects your interest in the security agreement from future
creditors. The filing puts future creditors on notice of the agreement; if a future creditor attempts to
seize the debtor's collateral (the jeep), you can rely on the date that you filed UCC-1 to show that you
have "first dibs" on the collateral.

5 Re-file UCC-1 every five years. A financing statement is valid for five years; after five years you must
refile to continue your protection. Amend your agreement by printing and filing UCC-3. If your
agreement changes (such as new collateral being offered to secure the debt), protect your interest by
amending your agreement by filing UCC-3.