Topic: Article 9 – Uniform Commercial Code
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We have a customer that wants to use liquid assets to secure a loan (stocks held in a brokerage account). How do we secure this? Would a UCC financing statement be sufficient?
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Your bank likely will want to perfect its security interest in the stock by obtaining control over the stock, as defined in the Uniform Commercial Code (UCC). Your bank also may perfect its security interest in the stock by filing a financing statement, but perfecting by control likely is preferable, as it would result in…
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What, if any, Illinois laws would apply to the bank selling repossessed property — particularly vehicles? Additionally, would you recommend that we have some sort of agreement that indicates the vehicle is being sold as-is without any warranty?
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The Illinois Uniform Commercial Code (UCC) governs most aspects of a sale of repossessed loan collateral. For sales of repossessed automobiles, certain provisions in the Illinois Vehicle Code and Secretary of State’s administrative rules also would apply if your bank does not have an assignment of the vehicle’s title by the owner. A sampling of…
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We have several questions about completing a “Notice to Buyer of Security Interest in Farm Products” form. Should we use a social security number or EIN as the taxpayer identification number, and should we enter most of that number as Xs? When describing the property, can we enter “all crops” or “all property”? Can the amount of the covered products be listed as “unlimited”? Should we refile this document annually?
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To ensure that the grain sale proceeds are made payable to your bank, you should follow the disclosure procedures in the Food Security Act and the Illinois UCC for this notice. Both federal and Illinois law requires lenders to provide a statutory notice to buyers of farm products in order to preserve their liens on…
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Can we disburse new funds on a closed-end commercial loan through a loan modification? For example, if a commercial customer has secured a $100,000 loan and pays down $20,000, can that customer later receive another $10,000 disbursement on the same loan through a modification?
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We are not aware of any laws that would prohibit modifying a commercial loan to allow for additional disbursements, but we recommend consulting with bank counsel to address certain risks created by this type of modification. At the outset, it would be prudent to ensure that either your original security agreement or your modification documents…
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An auto loan borrower left his vehicle at a repair shop and failed to pay for the repairs. The repair shop has since moved the vehicle to a storage facility. The repair and storage fees are around $30,000, which exceeds the vehicle’s value. Are the liens for the repair and storage services junior to our lien? We have the vehicle title, which shows our lien, and we have not received any communications from the storage facility.
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The repair shop may be able to assert a common law artisan’s lien for its repair work, which would have priority over your bank’s earlier perfected security interest in the vehicle, but not for the storage fees. Illinois courts have held that a common law lien for repair services has priority over a secured lender’s…
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We have a UCC financing statement that covers “all crops growing or to be grown,” and we have agreements with the borrower’s grain elevators to issue all checks to both us and the customer as co-payees. The borrower’s input suppliers do not have UCC financing statements covering the customer’s crops. Do we have priority over the input suppliers?
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Generally speaking, a perfected security interest in crops has priority over other unperfected security interests. We are not aware of any Illinois statutes that create a priority or superpriority lien for agricultural input suppliers (as in some other states). Consequently, we believe that this general rule would apply and that your bank would have priority…
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We want to change our bank’s name. Would that affect our UCC financing statements? Do we need to refile all of our statements with the bank’s new name?
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Generally, you are not required to update your financing statements. On a case-by-case basis, the UCC does recognize that equitable principles in a particular case could overtake this general rule. Such cases likely would be rare, and we would note that even after your name change, potential creditors would be able to identify that a…
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To perfect a purchase money security interest (PMSI) in inventory, we know that the Uniform Commercial Code (UCC) requires us to send an “authenticated notification” to other creditors with a conflicting security interest in the same inventory. What is an “authenticated notification”? What is the appropriate delivery method for the authenticated notification? Also, we know that the notification must be received “within five years before the debtor receives possession of the inventory.” Under this language, can a single financing statement and authenticated notification apply to all inventory that the borrower may purchase during that five-year period? Or do we need to file a separate financing statement and send a separate notice for each new piece of equipment the borrower purchases for resale during that five-year timeframe?
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Under the UCC, to “authenticate” a document generally means to sign it. With respect to delivering the authenticated (i.e., signed) notification, the UCC comments clarify that “either registered mail, return receipt requested, or the personal delivery of such notice, with receipt acknowledged in writing by the holder of the conflicting security interest, is obviously a…
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Our bank holds perfected liens in a farm loan customer’s assets, including its crops. The customer sold its crops to a grain elevator, which paid the sale proceeds to our bank, as the secured creditor. We have learned that the customer missed its rent payment for the farmland, which was due at the beginning of this month. Can the landlord assert a lien for the rent, after our bank has taken the crop sale proceeds and applied them to the customer’s loan?
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We believe that the landlord’s lien should have taken priority over your bank’s perfected liens in the crops and sale proceeds. In Illinois, landlords have a lien in crops grown on their land, and the lien has priority over any Uniform Commercial Code (UCC) liens. Consequently, the landlord’s lien has priority over your banks’ lien…
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We would like to enter into “floorplan” financing arrangement with a customer where we provide a line of credit for them to purchase lawn mowers to resell. We want to avoid filing a purchase money security interest for each individual mower the customer purchases. However, we want to ensure that we have a priority security interest over other lenders’ blanket financing statements that cover “all assets.” Can we file a “blanket” purchase money financing statement to cover all the equipment that the customer will purchase for resale?
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Yes, we believe that you may file a single purchase money financing statement to create a priority security interest in all of the mowers that your borrower will purchase for resale, subject to a five-year limit discussed below. However, we believe that you are creating a purchase money security interest in inventory (not equipment), which…