28 February 2023
/ Scott D. Fink
The Importance of Getting the Name Right: UCC-1 Financing Statements and the Risk of Losing Your Lien
A decision out of the Eleventh Circuit drives home the unfortunate end-result for a secured lender who makes an error when filing its UCC-1 Financing Statement. The court In re NRP Lease Holdings, LLC, 50 F.4th 979 (11th Cir. Sept 29, 2022) addressed a situation where, prior to the debtor’s bankruptcy filing, a lender attempted to perfect its security interest through the filing of two UCC-1 Financing Statements. The Financing Statements identified the debtor as “1944 Beach Blvd., LLC”, while it’s legal name was “1944 Beach Boulevard, LLC”.
In ruling that the UCC filings by the lender were not effective to perfect its’ security interest in the debtor’s assets, the court examined the Florida statute governing the effects of errors or omissions in UCC Financing Statements. Florida Statute §679.5061 provides that “[a] financing statement substantially complies with the requirements... unless the errors or omissions make the financing statement seriously misleading.”
There exists a “safe-harbor” provision in Florida for such errors, so long as a search of the state’s records using standard search logic would disclose the existence of the Financing Statement. Because the state of Florida’s search registry for UCC filings does not contain “standard search logic”, the court found that a “zero-tolerance” policy exists in Florida for such errors and, accordingly, the lender’s filing was “seriously misleading” and did not effectively perfect its security interest. Therefore, the lender was left with an unsecured claim within the bankruptcy.
While not all states are subject to such a “zero tolerance” policy for errors, the lesson is instructive to lenders nationwide: Take special care to accurately list your debtor when filing a UCC Financing Statement. The risks of getting it wrong could cost you the collateral securing your loan.
If you have questions on this topic, connect with shareholder and Bankruptcy Group chair Scott Fink at any time.
This blog is not a solicitation for business and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.
In ruling that the UCC filings by the lender were not effective to perfect its’ security interest in the debtor’s assets, the court examined the Florida statute governing the effects of errors or omissions in UCC Financing Statements. Florida Statute §679.5061 provides that “[a] financing statement substantially complies with the requirements... unless the errors or omissions make the financing statement seriously misleading.”
There exists a “safe-harbor” provision in Florida for such errors, so long as a search of the state’s records using standard search logic would disclose the existence of the Financing Statement. Because the state of Florida’s search registry for UCC filings does not contain “standard search logic”, the court found that a “zero-tolerance” policy exists in Florida for such errors and, accordingly, the lender’s filing was “seriously misleading” and did not effectively perfect its security interest. Therefore, the lender was left with an unsecured claim within the bankruptcy.
While not all states are subject to such a “zero tolerance” policy for errors, the lesson is instructive to lenders nationwide: Take special care to accurately list your debtor when filing a UCC Financing Statement. The risks of getting it wrong could cost you the collateral securing your loan.
If you have questions on this topic, connect with shareholder and Bankruptcy Group chair Scott Fink at any time.
This blog is not a solicitation for business and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.
