Topic: Article 9 – Uniform Commercial Code
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We have a commercial line of credit secured by equipment, farm products, government payments, and livestock. We filed a UCC financing statement regarding our security interest in the collateral. If we execute a change in terms to increase the loan amount, will the entire new loan amount be covered by the original security agreement, or will the amount of the increase be unsecured? The language in our original security agreement and change in terms agreement is not clear.
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We recommend consulting with an attorney to determine whether either your original security agreement or your change in terms agreement extend your original security interest to the new loan amount. The Uniform Commercial Code (UCC) expressly permits security agreements to secure future advances, and Illinois courts generally have upheld “cross-collateralization” clauses in security agreements to…
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We are extending a matured line of credit secured by equipment and farmland. The borrower has agreed to provide additional collateral for the loan by assigning grain contracts the borrower has executed with a buyer. We plan to prepare and execute a pledge agreement specifying each grain contract in which we are taking a security interest. The existing security agreement and financing statement describe the collateral as “All Equipment,” and a separate mortgage perfects our lien on the farmland. Do we need the borrower to sign a new security agreement or financing statement reflecting the additional collateral? What documents do we need from the buyer of the grain so that the grain sale proceeds will be payable to our bank?
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We recommend amending the security agreement and financing statement to reflect the additional collateral. Currently, your security agreement and financing statement describe the collateral as “equipment,” and this term does not encompass crops or grain. The security agreement should be amended to expand its collateral description to include the borrower’s grain and any proceeds from…
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How can we perfect a lien on an airplane hangar? Our borrower owns the hangar and has taken out a sublease of the underlying land. We are taking an assignment of the sublease and wanted to perfect our security interest in the hangar.
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We recommend perfecting your bank’s lien on the hangar by filing a financing statement with the Secretary of State, as well as recording a fixture filing with the county in which the hangar is located. The Uniform Commercial Code (UCC) requires perfection by filing a financing statement for most collateral types, unless an exception applies.…
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If we make a loan secured by collateral located in another state, do we have to follow that state’s right to cure notice requirements before foreclosing on the out-of-state collateral? If so, do other states’ right to cure notice requirements apply to all types of loans and all types of collateral? Can you recommend a website that provides a list of right to cure notice requirements for each state?
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Yes, we believe that your bank generally should follow the right to cure notice requirements in the state where your collateral is located, ideally in consultation with local bank counsel. Loan agreements routinely include a provision specifying which state’s laws will govern the contract (i.e., a choice of law provision). Our guess is that your…
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We want to add new collateral (a deposit account) and lower the interest rate on an existing commercial mortgage loan, with no other changes. Can we modify the note without recording a modification of mortgage since there is no extension of the loan term or increase in the loan balance?
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Yes, we believe that your bank may modify the promissory note without recording a modification of mortgage, but we recommend engaging your bank’s counsel to review the relevant loan documents and ensure that your bank’s lien position will not be affected. Illinois courts repeatedly have held that a note “given in renewal of another note…
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We are making a loan to an Illinois land trust. The loan will be secured by a money market deposit account issued by our bank and pledged as collateral on the loan (in addition to the real estate held in the land trust). Is this permitted? Since it’s our own deposit account, do we have automatic control over the deposit account? Or is other action required to perfect our lien?
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Yes, you are permitted to take a security interest in a deposit account held by your bank as collateral for a loan. To perfect your security interest, you need only have “control” over the deposit account, which you do; no further action is necessary. Note that if the deposit account was being held at another…
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We have a business customer that is buying a piece of equipment. We would like to know how to do the UCC filings. The loan secured by the equipment is made to XYZ Inc. d/b/a ABC Auto. The invoice from the dealer is addressed to ABC Auto. Should we do multiple filings to cover both business names?
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Since the debtor is a corporation, you should use the corporation’s name as it appears in the debtor’s Articles of Incorporation (or in the most recent Articles of Amendment that change the corporation’s name, if any). The Uniform Commercial Code (UCC) sets the standards for naming the debtor in a financing statement. For a registered…
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We have a potential borrower who owns a lot of equipment. He has 12 loans with other banks, and these other lenders each have UCC blanket liens covering all of the borrower’s inventory and equipment. We would like to make a loan secured by (but not to purchase) specific equipment covered by those UCC liens. Can we require the other lenders to assign us their interest in only this specific equipment or to otherwise acknowledge our lien priority with respect to this equipment?
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You may request lien subordinations from each of the senior lenders for this piece of equipment, but you cannot require them to subordinate their security interests to your bank. The Illinois Uniform Commercial Code (UCC) permits a lender holding a senior security interest to subordinate its interest to another lienholder by entering into a subordination…
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How do you recommend that we conduct UCC searches in Illinois? The Secretary of State’s office told us that we have to mail in search requests and submit either a blank check or a photocopy of a credit card for payment; is there a more efficient way to submit and pay for lien search requests?
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The Illinois Secretary of State does offer free, online UCC searches at http://www.ilsos.gov/uccsearch/, but the free search results are uncertified. The Secretary of State requires a UCC-11 form and payment for certified search results. As an alternative to submitting search requests to the Secretary of State directly, you might consider using a third party to…
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We provided a line of credit to a farmer who used the proceeds to plant his crops on rented land. We recently found out that he has not paid his cash rents and the landlord is threatening him with a lawsuit. As the lender, does our bank face any liability for the farmerâs unpaid rent? Also, we have a security interest in the crops on the rented land, for which we filed a UCC financing statement. What if the landlord also filed a financing statement for those crops? Do we have priority over the landlord?
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First, although we cannot provide legal advice, we are not aware of any liability that your bank might face for your borrower’s breach of his rental agreement with his landlord. Under Article 9 of the Uniform Commercial Code, the fact that your bank has a security interest in your borrower’s crops does not subject you…