We believe that executing new security agreements and filing statements every time a debtor acquires new property (“after-acquired property”) is overkill. However, you must ensure that your security agreements and filing statements are structured to properly include collateral that the debtor acquires after the execution of the security agreement and the filing of the financing statement.

A perfected security interest in goods has two parts: (1) the security agreement (by which the lien “attaches”) and (2) the authorized financing statement (by which the lien is “perfected,” giving it priority over subsequent liens). (Special types of collateral, such as vehicles, have special perfection requirements and are not perfected by a financing statement.)

A “blanket” UCC financing statement that covers “all assets” of the debtor is sufficient to perfect a security interest in all of the debtors’ goods. 810 ILCS 5/9-504(2). However, in order to first attach the security interest, the security agreement must describe the collateral it covers with more specificity than the filing statement. 810 ILCS 5/9-203(b)(3)(A)810 ILCS 5/9-108(b).

An “after-acquired collateral clause” is effective to attach a valid security interest in property acquired after the borrower signs the security agreement (except for most consumer goods and commercial tort claims). 810 ILCS 5/9-204. Whether a security agreement covers after-acquired property depends on the intent of the parties (you and the borrower), and it would cover only property that falls into the specified descriptions in the security agreement. Official Comment 3, 810 ILCS 5/9-108; Schechter v. Nelson (In re Nightway Transp. Co.), 96 B.R. 854 (Bankr. N.D.Ill. 1989). “[N]o further action by the secured party — such as a supplemental agreement covering the new collateral — is required.” Official Comment 2, UCC Section 9-204. Financing statements cover after-acquired property “regardless of whether after-acquired property or future advances are mentioned in the financing statement and even if not in the contemplation of the parties at the time the financing statement was authorized to be filed.” Official Comment 2, UCC Section 9-502.

Because you mentioned vehicles, we note that vehicles covered by a certificate of title must be perfected under the Illinois Vehicle Code; they are not perfected by financing statements. 810 ILCS 5/9-303(c). The Vehicle Code states that a security interest in a vehicle is perfected by “delivery to the Secretary of State of the existing certificate of title, if any, an application for a certificate of title containing the name and address of the lienholder and the required fee.”  625 ILCS 5/3-202(b).