What Is a UCC Filing in Real Estate?
Articles of the Uniform Commercial Code (UCC) are suggested regulations to govern commercial transactions such as leases, sales or private financing arrangements. As the UCC codes comprise a set of uniform rules, but are not federal mandates, it's up to each state to adopt them wholly, not to adopt them or to adopt the code only partially (at the time of publication, all 50 states have adopted the UCC). Compiled in 1952, the code's different sections receive continuous updates and amendment. The main purpose of this set of codes is to bring uniformity in commercial laws between the states and reduce the complexities involved for average citizens.
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UCC Filing
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A UCC filing is the completion of an official procedure that serves as a public record that a secured lien or interest exists. The filing ensures that no conflict arises because of prior filings. Privately financed leases of goods or sales of goods are examples of transactions that require UCC filings, hence highlighting that the transactions are subject to the terms of the code. Types of forms filed include UCC-1, UCC-3 or UCC-5, which are the financing, amendment and correction statements, respectively. Each state’s secretary of state oversees and maintains UCC filing records.
Real Estate
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The UCC provides a form of public notice for placing a lien on a debtor’s property to safeguard the creditor’s interest in that property from future liens. To fulfill this task, sign an agreement with the debtor and complete the UCC-1 form. You must also submit it to the appropriate state agency. The UCC provides mechanisms to place liens on movable property. Real estate lies under immovable property, so you cannot place liens on this property directly through the UCC. Items present on, or inside, or forming a part of the real estate that can be moved, however, can be collateralized. These include items such as tractors on a farm, or plasma TV sets along with satellite receivers.
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Benefits
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The general public receives many benefits because of the standardization of commercial statutes through the UCC. The code's nine articles cover responses to issues that relate to various transactions, including leases under Article 2A. This section of the code addresses “lessee” and “lessor” responsibilities, lease contracts and warranties. Article 2A also addresses other issues pertaining to leases including subleases, insurance and creditor rights. The UCC adds stability to commercial activities across state lines and thus makes trading between states easier for business people, particularly when dealing with legal issues.
Considerations
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Because the UCC adds clarity to commercial dealings, many businesses in commercial credit use UCC code. Contact an attorney for advice if your transaction does not fall under the UCC codes or if the status of the transaction is vague. The UCC filing is only used to protect a creditor’s stake in a collateralized asset, and documents filed under the UCC do not perfect a lien on real estate collateral. Financing statements that you submit against a debtor last for five years, until you refile the financing statement.
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