Topic: Article 9 – Uniform Commercial Code
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We have pre-2013 financing statements that failed to use an individual’s debtor’s name as shown on the debtor’s driver’s license. The financing statements have not yet lapsed. When filing a UCC-3 amendment, should we amend the debtor’s name or add the correct name as an additional debtor?
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Assuming that the pre-2013 financing statements have not lapsed, we recommend amending the name of the debtor on the UCC-3 form to match the name on the debtor’s driver’s license, instead of adding an additional debtor. Article 9’s 2013 amendments allow you to amend the financing statement to correct the debtor’s name before the financing…
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Five years ago, we repossessed a car and sold it without contacting the borrower’s father, who had cosigned the loan. The sale resulted in a deficiency balance. Do we have to provide a default notice to the father before attempting to collect the deficiency balance from him?
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Yes, you must provide notice to the cosigner before attempting to collect the deficiency balance from him. The Illinois Consumer Fraud and Deceptive Business Practices Act requires you to notify a cosigner before taking any action to collect from the cosigner, and it describes the information that must be included in this notice. Since you…
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We have a mortgage and an assignment of rents on rental property. The renter recently had a federal tax lien filed against it. Does our mortgage lien and assignment of rent trump the IRS tax lien?
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Yes, we believe your mortgage lien and assignment of rent trumps the IRS tax lien. The Internal Revenue Code provides that a tax lien is inferior to a perfected security interest of a secured party if the secured party does not have “actual notice or knowledge” of the tax lien at the time the security…
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We made a vehicle loan to a minor, who is the sole owner of the vehicle. We required a co-borrower due to the minor’s age. However, can we use the vehicle title as collateral, and will that be binding?
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Yes, you can use the vehicle as collateral, but be aware that the minor’s age adds some risk that the security agreement could be challenged — at least until the minor reaches the age of eighteen and ratifies the security agreement. In Illinois, the general rule is that an agreement with a minor is voidable…
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Are we required to use a “same name” affidavit for loans where a customer’s name on the loan documents does not match the name on his or her Illinois driver’s license (e.g., “Bill” versus “William”)? What are the possible consequences of having a customer sign a loan document using a nickname?
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No, we are not aware of any law or rule that would require you to use a same name affidavit for a customer that signed loan documents with a name other than what is on his or her driver’s license, although this practice may be advisable. Loan documents using a nickname very likely are enforceable…
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We want to secure equipment that is personally owned by a franchisee and located at the franchisee’s chain restaurant as collateral. Do we need to include the address of the restaurant on the security agreement?
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No, we are not aware of any law or rule that would require you to list the debtor’s address in the security agreement, provided that it is obvious or readily inferable that the equipment is located in the debtor’s restaurant. At least one Illinois court has held that, with respect to a security agreement, “it…
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We want to secure equipment at a chain restaurant as collateral. On the security agreement, should we list all the equipment individually or should we just state that we are taking all equipment at the restaurant as collateral?
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We believe that you may include the equipment on the security agreement as a category, rather than listing each piece of equipment separately. To be enforceable against the debtor, the security agreement must include a “description of the collateral,” meaning a description by specific listing, category, type, quantity, formula, etc. At least one Illinois court…
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Can we file a UCC filing statement to perfect a security interest in a baseball card collection? What verbiage is required?
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We believe that you may perfect a security interest in the baseball cards by filing a financing statement, as would be done with any other security interest in personal property. See 810 ILCS 5/9-310(a). The financing statement should describe the baseball cards, as it will become effective only if it “indicates the collateral covered” (among…
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One of our commercial credit analysts was told that we need to verify all business names with the Public Organic Record from the Illinois Secretary of State (at a $25 fee) and that a Certificate of Good Standing provided on the Secretary of State’s website is not sufficient.
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If a debtor is a “registered organization” (as defined under the Uniform Commercial Code (UCC)), we agree that a Certificate of Good Standing is not sufficient to verify the name of a debtor to be used on a UCC-1 Financing Statement. However, as noted below, not all businesses are “registered organizations.” Under the 2010 UCC…
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I identified an issue with one of our vehicle loans. The borrower is married, but she never legally changed her last name to her husband’s name. However, her vehicle title (gifted by a family member) shows her name incorrectly, with her husband’s last name. As a result, our loan officer executed all of the loan documents using an incorrect name, as shown on the vehicle title, instead of the borrower’s legal name, as shown on her driver’s license. Should we have the customer re-sign the loan documents using her legal name? Should we refile our lien on the vehicle?
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In our view, whether your customer should re-sign the loan agreements and correct the vehicle’s certificate of title is a business decision. In general, customers should sign loan agreements and security agreements using their proper legal names, in order to remove any potential hurdles to enforcing the agreements. The most prudent route here would be…