Protect Your UCC Priority with ABCs of Post-Closing Due Diligence

After funding a deal and filing a UCC Financing Statement, it's critical  to keep an eye out for post-closing events that could jeopardize your ability collect. CLAS suggests following the ABCs of post-closing due diligence to protect your priority for the life of your loan.

Always Perform a Search to Reflect

A search to reflect is a great way to catch UCC filing mistakes before it's too late. Sometimes referred to as a post-filing verification search, the value of a search to reflect is twofold. First, the search will confirm that the filing office made no errors when indexing your document and second, it will verify your lien position relative to other creditors.

Be Mindful of Changes in the Public Record

It is important to monitor for changes in the public record that could affect your position to collect. Debtor monitoring programs perform regularly scheduled UCC and/or corporate database searches and alert you to any important changes such as unauthorized terminations, new UCC or tax lien filings, changes in corporate status, mergers, name changes, etc.

Carefully Track UCC Lapse Dates

To maintain a healthy UCC portfolio you must carefully track UCC lapse dates and file timely Continuation Statements when a debtor's financial obligation extends beyond five years. It is important to manage this process meticulously, as a lapsed UCC filing ceases to be effective and can open the door for a junior creditor to move into a first-priority position.

CLAS CAN HELP! 

From easy-to-order online searches to reflect, to low-cost UCC and Corporate monitoring and automated Continuation Alerts, CLAS Information Services offers a full suite of post-closing solutions to help you preserve your priority position and minimize your risk for loss. Contact CLAS today for a free consultation! 800.952.5696 | connect@clasinfo.com

Top Tax Lien Searching Questions - Answered!

Tax lien searching can be confusing. There are a lot of variables to consider and CLAS Information Services has found that our clients have questions. Here are answers to our most commonly asked questions on tax lien searching:

Why Should I Search for Tax Liens? 

Before funding a deal, it is important for a lender to know about an applicant's existing financial obligations, especially those that could represent a competing claim. Federal Tax Liens and State Tax Liens are a factor in determining priority of claims and can jeopardize a lender's ability to collect in the event of a debtor bankruptcy.

Additionally, Federal and State tax liens are nonconsensual liens, meaning there is no agreement between the lienholder and the taxpayer. In fact, a tax lien can be filed without the taxpayer even knowing about it, so a Federal and State tax lien search may be the only way for a lender to learn about a tax lien before it's too late.

Where Do I Search for Tax Liens?

A taxpayer's primary address determines in which state a tax lien would be filed, but each state independently decides what filing office(s) in their jurisdiction will administer tax lien records.

Some states elect to have tax liens filed at the state level (i.e. Secretary of State or equivalent) while others accept tax liens at a county-level filing office such as County Recorder or even at a court. In some states, the filing office further depends on whether the taxpayer is an individual or a business. 

Do Name Variations Matter in Tax Lien Searching?

When a Secured Party files a UCC Financing Statement, it must list the debtor names according to strict Uniform Commercial Code rules or the filing will be not effective to perfect its security interest.

Government agencies are not held to the same strict standard when filing tax liens. In many cases, tax liens maintain priority even if the lien lists a variation of the taxpayer's legal name - so it is important to be sure your tax lien search will report tax liens filed under similar names.

For help in ordering a tax lien search, contact CLAS Information Services today! For over 35 years, CLAS has been helping financial institutions, title companies, attorneys and others coordinate due diligence search efforts and close transactions with confidence. 800.952.5696 | connect@clasinfo.com

A UCC Search to Reflect: What is it? Why do I need it?

A UCC Search to Reflect is a Critical Piece of the Due Diligence Process

After filing a UCC Financing Statement or Amendment, a conscientious secured party will request a search to reflect their filing.  A search to reflect is a UCC debtor search of the office where you filed a UCC document, performed after your filing posts to the index.  UCC experts and public records professionals agree that a search to reflect is a critical piece of the due diligence process.  

If you are not routinely performing a search to reflect after filing a UCC, consider the following:

A Search to Reflect Confirms Proper Indexing 

The indexing of UCC filings is still largely a manual process and errors do occur. A search to reflect will confirm how your filing is entered on the state’s searchable UCC index and reveal if the filing office committed any typographical errors when indexing your UCC filing.  Data entry errors in the debtor name are of particular concern as they can cause a filing to be difficult to locate in the public record and could put a secured party at risk.

A Search to Reflect Verifies Priority Position

Even if you performed a comprehensive pre-funding UCC search, another creditor could have filed a UCC or other lien naming your debtor after you performed your search, or a lien could have been missed on the initial search effort. A search to reflect will verify your priority position to collect, relative to other creditors who may hold a claim in the same collateral.

CLAS UCC eZFILE® users enjoy a simplified search to reflect process. Users can establish global defaults to request a search to reflect automatically with every filing. CLAS will then monitor the filing office index and initiate a search to reflect once the index date is sufficient to capture the user’s filing. Our highly skilled UCC department will also review the search and work with the state to correct any indexing errors on the client’s behalf. Not a UCC eZFILE® user? Click here to request a free system demo!

Five “Need to Know” Facts About Filing UCC Continuations

In order to maintain a healthy UCC portfolio, a secured party must carefully monitor UCC lapse dates and file timely Continuation Statements when a debtor’s financial obligation extends beyond five years. It is critical that secured parties manage this process meticulously, as a lapsed filing ceases to be effective and can cost the secured party its priority position to collect.

Determining when to file a Continuation Statement can be confusing. Here are five “need to know” facts to get you on the right track:

1. A standard UCC Financing Statement is effective for a period of five years from its date of filing.

2. Every UCC Financing Statement has a filing date and a corresponding lapse date.

3. To extend the term of effectiveness, a secured party must file a Continuation Statement prior to a UCC’s assigned lapse date.

4. A Continuation Statement can only be filed within six months of the UCC’s lapse date; a Continuation Statement that is submitted prematurely will be rejected by the filing office.

5. A filed Continuation Statement extends the UCC’s effectiveness for an additional five years from the date that the Financing Statement would have expired, not from the filing date of the Continuation Statement.

Did you know? Every UCC filing prepared and submitted through the CLAS UCC eZFILE® system is automatically enrolled in free lapse date tracking. As filings approach their lapse date, users receive automated continuation alerts to remind them to take action; on-demand continuation reports allow users to view a listing of filings set to lapse up to a year in advance. Contact CLAS today to request a free system demonstration! 800.952.5696 | connect@clasinfo.com

CLAS Adds Five New States to DIY Search System

Kansas, Montana, Nebraska, North Dakota, South Dakota Now Available 

CLAS Information Services is pleased to announce that we have added five new states to our DIY Search System™.  Users can now logon to www.clasinfo.com and perform searches in Kansas, Montana, Nebraska, North Dakota and South Dakota.

See below for details on what lien types are included in the data:

Kansas: UCCs and Federal Tax Liens

Montana: UCCs

Nebraska: UCCs, Federal and State Tax Liens and Judgments

North Dakota: UCCs, Federal and State Tax Liens

South Dakota: UCCs and Federal Tax Liens

The CLAS DIY Search System™ provides users with anytime, anywhere access to perform UCC and lien searches, prepare customized search reports, print or save document images, generate similar name reports, access historical search results and more.

Want to learn more? Contact CLAS at 800.952.5696 or click here to schedule a free online system demonstration!

Evaluating if UCC E-filing is Right for Your Organization

Is UCC E-filing the Right Choice for Your Organization?

These days, nearly every state filing office accepts some form of electronic filing (E-filing) for UCC documents, often either through xml transmission or a fillable web form. Some states are even beginning to mandate E-filing for UCCs. Back in 2012, Colorado became the first state to require that all UCC filings be submitted electronically. New Jersey has now followed suit and will require E-filing for all UCCs beginning July 1, 2015. Click here to read our blog post about this new development.

In recent years, E-filing has been gaining popularity among lenders and other high-volume UCC filers owing to a couple of key benefits. First, E-filing is a great way to reduce UCC filing costs.  That’s because most states charge a lower fee to file a UCC that is submitted electronically than they do for a paper document that is presented for “over the counter” processing. Consider Delaware, for example, where a one-page, single debtor UCC Financing Statement submitted in paper form will incur a $100 filing fee while that same document submitted electronically will incur a charge of only $30.

E-filing UCC documents not only saves money it also saves time. A paper filing is subject to indexing backlogs and other processing delays at state filing offices, which can slow the turn-around time for acknowledgement. A filing that is submitted electronically requires little (if any) filing officer involvement though, so it is often assigned a date and file number much more quickly. In fact, most E-filed UCCs are acknowledged within 24 hours – sometimes even sooner.

Despite these benefits, some UCC filers have been reluctant to adopt E-filing over concerns about formatting changes that can occur with electronically filed UCC documents. Here’s why.

If you elect to begin E-filing your UCCs, it is important to be aware that the acknowledgement copy you receive back from the state may look different from the document you prepared. In many states, an electronically filed document will undergo minor changes during the submission process. These can include converting text to ALL CAPS, changes to font style or size, adjustments in spacing or formatting of collateral descriptions and more.  

UCC experts agree that these changes are purely cosmetic and will not compromise the effectiveness of the record, but it is always best to know what to expect when making a change to an important business process.

Ready to Start E-filing?

The CLAS Information Services UCC eZFILE® system offers E-filing in every state that accepts UCCs electronically. That’s over 40 filing offices nationwide! As an added benefit, every document submitted through UCC eZFILE® is reviewed by one of our highly trained UCC experts to catch potential filing errors, reduce rejected filing and save you money. Contact CLAS today at 800.952.5696 or connect@clasinfo.com to learn more or click here to request a free system demonstration!

Changes Affecting Non-Real Estate UCC Searches in Georgia

Recent changes affecting searching for UCC filings in Georgia

Unlike other states, Georgia has no central filing office such as the Secretary of State for filing UCCs. Instead, non-real estate UCCs are submitted to an individual county. The county Clerk assigns a file number, then transmits the UCC information and an image to the Georgia Clerk’s Authority, which then indexes the UCC in a statewide database and makes the image available.

Until recently, subsequent UCC-3 filings had to be filed in the same county as the original UCC. That is no longer a requirement. Now it is legal to file subsequent UCCs in any of Georgia’s 159 counties. This means that while it is possible to search a single county in Georgia for UCC filings, doing so can result in omissions in what is reported. Fortunately, CLAS always performs a search of the Statewide UCC database for Georgia UCC Searches. (One exception to this is in the case of conducting a search after filing, if you are doing so to ensure that it has been filed correctly.)

Information about non-real estate UCC searches in Georgia originally appeared in our February 2015 newsletter. To stay up-to-date on UCCs, you can subscribe to receive our newsletter, which is issued every other month. If you have questions about searching for UCCs in Georgia or elsewhere, please contact your CLAS Service Representative.

New California UCC Forms as of July 1, 2014

California requires new UCC forms as of July 1, 2014

As of July 1, 2014, the California Secretary of State's office will no longer accept older versions of the UCC forms. Instead they will require the latest forms, which have the revision date 04/20/2011.

If you are a UCC eZFILE® user, the new forms will automatically be available to you. UCC eZFILE® does the work of keeping track of forms for you.

UCC Article 9 for California

California passes 2010 UCC Article 9 Amendments, effective July 1, 2014.

Assembly Bill 502, containing the 2010 Amendments to UCC Revised Article 9, has been signed by California governor Jerry Brown. The effective date of the bill will be July 1, 2014. Instead of choosing Alternative A or B from the model act, California will have a non-uniform rule for the sufficiency of individual debtor names.

For California, the financing statement will be sufficient only if it provides the individual name of the debtor or the surname and first personal name of the debtor. This is similar to Alternative B. However, It does not include the driver's license variation.

The Nightmare of Federal Tax Liens

When an IRS Lien Takes Precedence

Even though you’ve done your initial due diligence prior to approving a loan, if the IRS files a federal tax lien on your client it may take precedence. This means that you can have a perfected UCC filing and still lose your lien position to the IRS, putting you at risk of being unable to recover your investment. When can this happen and how can you protect yourself from the risk presented by federal tax liens?

For loans made before the IRS files a federal tax lien, the lender has priority. The difficulties arise if you make loans after the IRS files the federal tax lien on your client (for example, loans made in a revolving line of credit). As soon as the IRS files the tax lien, the clock starts on what is known as the 45-day rule.

What is the 45-day rule?

For loans made before the IRS filed the federal tax lien, the lender has priority. In situations where a federal tax lien is filed after a lender has entered into a security agreement with a borrower, the 45-day rule is used to determine who has priority. The 45-day period for this rule starts when the IRS files the lien. This means that whether you know about the federal tax lien or not, the clock is ticking! To make matters even more challenging, the IRS is not required to notify lenders about federal tax liens. It’s entirely up to you to find out about them and protect your interests.

Here’s how the 45-day rule works. If you don’t know about the federal tax lien you have 45 days from when it was filed. During this time, your loan has priority. After this 45-day period, whether you know about the federal tax lien or not, the IRS will have priority. If you know about the federal tax lien during the 45-day period and make an additional loan to your client, the IRS will have priority. This simplified chart breaks it down:

What can you do to minimize your risk?

You can make it a regular practice to search for federal tax liens. A word of caution – relying on online searches of databases for federal tax lien searches is risky. These databases often lag behind real-time data. If you rely solely on them, you may not find about liens before the end of the 45-day period. To avoid this, consider hiring a service provider to do manual searches at the state and county level. This way you can find tax liens before issuing credit that will be second in priority to the IRS.

How often you perform these searches will depend on your risk assessment. For high-risk situations, you may need to search every 30 days; for lower-risk situations, you may decide that every 60 days or once per quarter is sufficient.

A final question to consider is where these searches will need to be performed. Federal tax liens can be found at the state level in some jurisdictions; other jurisdictions only require the IRS to file them at the county level. Again, you may wish to consider using a service provider who is already familiar with these rules.