Topic: Article 9 – Uniform Commercial Code
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We have a customer who wants an auto loan. The customer has good credit, but is subject to a federal tax lien. If we make the loan (secured by the car), what is our priority in relation to the tax lien?
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The federal tax lien would have priority over your secured interest in the car. A security interest takes priority over a previously recorded tax lien only if the secured party does not have “actual notice or knowledge” of the tax lien at the time the security interest is created, which is not the case here.…
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We refinanced a mortgage loan that is secured by a manufactured home and the underlying land. The original lender had taken a mortgage in the underlying land, notated its lien on the manufactured home’s title, and filed a UCC-2 form for the manufactured home. That lender released its mortgage and removed its lien from the title, but it has not released its UCC lien. We have had no luck working with the lender — they appear not to understand (they just keep resending the mortgage release instead of a UCC release). Can the borrower file something to release the UCC lien?
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Yes, the borrower (or even your bank) may file a termination statement regarding the UCC lien, provided that the borrower is entitled to the termination, and, if your bank files it, the termination statement indicates that the borrower authorized the filing. Once a secured obligation has been satisfied, the UCC requires the secured party to…
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When another lender has an existing security interest perfected by a UCC-1 financing statement that covers all of the debtor’s commercial assets, would that apply also to the warehouse receipts from a grain elevator? Or could we, as the second lender, obtain priority by taking possession of the warehouse receipts? The elevator itself is the borrower and owns the grain covered by the warehouse receipts.
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If the other lender’s financing statement covers the grain, we do not believe that you can obtain priority over the other lender’s security interest in the warehouse receipts or in the underlying grain. But if there is a defect in the other lender’s financing statement, or if it does not cover the grain, then it…
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How long do we have to file a UCC financing statement after making a purchase-money loan secured by farm or construction equipment?
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We are not aware of any deadline for filing a UCC financing statement for a purchase-money loan secured by farm or construction equipment. However, unless you file your financing statement within 20 days after the debtor receives the equipment securing the loan, you risk losing your priority over other creditors. While the rules of priority…
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We are filing a financing statement on a customer who recently moved to Illinois. The customer has not yet obtained an Illinois driver’s license but has one from Iowa. Is that valid for purposes of filing the financing statement, or do we need to see a driver’s license issued by Illinois?
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No, you are not required to obtain an Illinois driver’s license when filing a financing statement for an Illinois resident. Under the Illinois version of the Uniform Commercial Code (UCC), ordinarily you would provide the debtor’s name as it appears on the debtor’s most recent Illinois driver’s license. However, because the debtor does not have…
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One of our business customers is past-due on its business credit card. We have a security agreement securing a separate loan with a cross-collateralization clause granting us a security interest in “all present and future debts.” Would any laws prohibit us from enforcing the security agreement with respect to the business credit card debt?
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No, we are not aware of any laws prohibiting you from enforcing a security agreement that secures business credit card debt. For example, Regulation Z’s limitations on securing credit card debt with a borrower’s deposit account apply only to consumer debts. Also, we note that courts in Illinois generally have upheld cross-collateralization clause, provided that…
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We are filing an amendment to our financing statement to release a specific piece of equipment that we were holding as collateral, per the debtor’s request. We currently have a blanket lien on all inventory, chattel paper, accounts, etc. When filing the UCC-3 form, should we check the “delete collateral” box or the “restate collateral” box?
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While the UCC does not address this question in the law itself, the Official Commentary to the Uniform Official Code clarifies that you may amend a financing statement by identifying specific changes (i.e., by using the “delete” box) or by restating the entire collateral description (i.e., by using the “restate” box). In other words, you…
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A customer has applied for a car loan, and he wants his grandson, who is a minor, to cosign the loan. Both are named on the car title. Our loan agreement provides that both debtors are jointly and severally liable for the loan amount. Will the minor’s signature be binding? Is the loan agreement void because one of the debtors is a minor? What if all payments are made by the grandfather only?
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No, the minor’s signature will not be binding on the loan agreement or the security agreement until the minor reaches the age of eighteen and ratifies the agreements. However, the loan agreement will not be void, as the grandfather’s signature is binding, and you have told us that he is liable for the entire loan…
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Why does our forms vendor suggest using “limitations on cross-collateralization” clauses in our commercial and consumer promissory notes and security agreements?
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Your vendor’s limitations on the cross-collateralization clauses in its loan forms appear to be meant to prevent you from inadvertently triggering and violating statutes and regulations that apply to residential real estate loans. For example, if your bank places a broad cross-collateralization clause in the mortgage document for a loan secured by residential real estate,…
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Are cross-collateralization clauses enforceable?
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Yes, courts in Illinois generally have upheld cross-collateralization clauses, which are provisions in security agreements that secure both the current loan and future loans (whether made by the same or another lender). The U.S. Court of Appeals for the Seventh Circuit recently held that a cross-collateralization clause in a mortgage document was enforceable because it…