Topic: Article 9 – Uniform Commercial Code
-
Our loan department is considering lending to minors if they have a parent or guardian as a co-borrower. Can we limit this lending to loans with a security interest in an automobile? If title to the vehicle is in the minor’s name, what issues could we run into if we try to collect on the note or repossess the vehicle?
—
by
Limiting Minor Borrowers to Auto Loans In Illinois, the general rule is that minors cannot enter into legally binding contracts, since an agreement with a minor is voidable by the minor until they reach the age of majority (which is eighteen in Illinois). There are some exceptions to this general rule, as in cases of…
-
We originated a consumer mortgage loan to joint borrowers, who recently informed us that they have legally changed their names. Is there anything we need to do other than document this in the loan file? Should we be concerned that the borrowers’ names now do not match the loan documents?
—
by
No, we do not believe you need to take any additional action to address a consumer customer’s name change after updating your internal loan file and verifying the name change, as your promissory note, mortgage, and current lien position would not be affected by a name change (subject to the caveat for blanket UCC financing…
-
We want to extend a loan to a company and take all of their assets as collateral, including their accounts receivable. However, the company already has supply chain financing arrangements with other banks. For example, when the company wants to be paid immediately for goods sold to a buyer, the company contacts Bank A and receives immediate payment from the bank. Bank A in turn buys the relevant account receivable from the company. We are aware that Bank A has filed a Uniform Commercial Code (UCC) financing statement that may cover some of the company’s accounts receivable. Would Bank A’s security interest in an account receivable have priority over a financing statement we file afterward covering all of the supplier’s accounts receivable?
—
by
Yes, we believe that a prior sale of accounts that has already been perfected would have priority over any financing statement covering the same accounts that your bank files later in time. Article 9 states that “a debtor that has sold an account does not retain a legal or equitable interest in the collateral sold.”…
-
Is there a requirement under state law to refund any surplus after the sale of a repossessed vehicle? If so, does this requirement extend to a vehicle surrendered in a bankruptcy proceeding?
—
by
Yes, Article 9 of the Illinois Uniform Commercial Code (UCC) generally requires secured parties to pay a debtor for any surplus resulting from the sale of a vehicle that has been repossessed, and we believe this provision also is applicable to a vehicle surrendered in a bankruptcy proceeding. Whether a vehicle is repossessed by judicial…
-
A corporate customer has asked us to sign a “Deposit Account Control Agreement.” We are not familiar with these agreements and want to ensure we understand the risks involved with signing one. Can you provide us with any guidance on these types of agreements?
—
by
In general, a Deposit Account Control Agreement (DACA) is an agreement that allows a secured party to perfect a security interest in a borrower’s deposit account when the secured party is not the bank holding the deposit account. Whether to sign a DACA is a business decision for your bank, and we recommend reviewing the…
-
We have a UCC-1 financing statement on file for collateral securing a loan we are renewing. The borrower now has a REAL ID driver’s license reflecting their full middle name, but our UCC-1 reflects only their middle initial. Do we need to amend the UCC-1 to match the name on the borrower’s new ID or is the UCC-1 valid until the date we are required to file a continuation for it?
—
by
We recommend amending a “blanket” financing statement (UCC-1) within four months of the issuance of a new driver’s license reflecting a different name than what appears on the UCC-1, as this is the length of time a financing statement remains effective as to after-acquired property once it becomes “seriously misleading.” Although a change from a…
-
Is there a timeframe for amending a Uniform Commercial Code (UCC) financing statement when a customer’s name changes on their driver’s license? REAL ID driver’s licenses include individuals’ full middle names (not just the middle initial), and we would like to know how long we have to amend our financing statements to reflect a changed name on a driver’s license (e.g., a change from “John S. Smith” to “John Scott Smith”).
—
by
We recommend amending a “blanket” financing statement (UCC-1) within four months of the issuance of a new driver’s license reflecting a different name than what appears on the UCC-1, as this is the length of time a financing statement remains effective as to after-acquired property once it becomes “seriously misleading.” Although a change from a…
-
If a husband pledges all of his untitled farm equipment as loan collateral under a blanket financing statement, and he is the sole borrower and sole grantor, should we require his wife to grant the equipment to us as collateral as well? We already know that we cannot make her liable, but how do we prove ownership of the machinery and who should be granting it since it is untitled? We are worried about a situation in which the wife claims an interest in the equipment if the couple ever gets divorced.
—
by
Yes, we believe that you should have both spouses sign the security agreement for the collateral, given the possibility that the wife may have some type of ownership in the untitled farm equipment — whether before or after a potential divorce. Under the Illinois Uniform Commercial Code (UCC), a security interest generally attaches to collateral…
-
When a customer changes their name (most often in the case of marriage), is it a requirement that they sign a new signature card? If we have their new signature on another document, such as their new ID, would that suffice for signature verification, or must the new signature be captured on the signature card?
—
by
We are not aware of any Illinois laws or regulations that would require you to update signature cards after a customer changes their name (for example, after a marriage, divorce, or adoption), nor do FinCEN’s Customer Identification Program (CIP) regulations require specific procedures for memorializing name changes (which of course you should verify as provided…
-
Are there any Illinois laws that address what must be included on the form we use for customer name changes when the name change is due to certain life events such as marriage, divorce, or adoption? Also, do we need to issue new account agreements reflecting a customer’s updated name?
—
by
We are not aware of any Illinois laws or regulations that dictate what must be included on banking forms used to document customers’ name changes due to marriage, divorce, or adoption. The federal Customer Identification Program (CIP) regulations require only that your CIP “include risk-based procedures for verifying the identity of each customer to the…