Bulletin: NJ000053

Dear Associates:

As of January 1, 2002, all fifty states have adopted the revisions to Article 9 of the Uniform Commercial Code in substantially the same form; the effective date of the revisions in New Jersey was July 1, 2001. While Article 9 deals primarily with non-real estate secured transactions, it nevertheless impacts accommodation searches and filings you maybe requested to do for our clients and therefore a general understanding of the changes in the law maybe helpful to you.

In commercial transactions, you maybe requested to conduct searches for financing statements outside of the scope of our title commitment. Because of the difficulty in determining the proper location to search, always have the client direct you to search specific indexes and confirm in writing the indexes you searched when reporting the results. A suggested confirmation form is attached for your use.

For example, do not provide a report simply saying that you have searched for UCC financing statements at the state level. Rather, specify what state you searched.

The following are points you should keep in mind when ordering or reviewing searches or filing financing statements.

Basic Concepts
The basic concepts of Article 9 remain unchanged. In order to have a valid security interest, the interest must attach and be perfected in order to be enforceable. The revisions have expanded the types of collateral covered by Article 9 to include among other things, investment property, (which is personal property) so financing statements may be more common for individuals.

Location of Debtor
Under the provisions of the prior text of Article 9 ("Old 9"), the place to file a financing statement was based on the location of the collateral. Under the provisions of the revised Article 9 ("New 9"), the filing is made based upon the location of the debtor. The location of the debtor is determined as follows (Section 9-307):

• If the debtor is an individual, his or her location is their residence.
  
  
• If the debtor is a "Registered Organization" (i.e., a corporation, limited partnership, limited liability company), its location is the state of registration (i.e., its state of incorporation or filing).
  
  
• If the debtor is a non-registered organization (i.e., a partnership) and has only one place of business, its location is its place of business. If it has more than one place of business, its location is its chief executive office.
  
  
• If the debtor is organized under federal law or is a non-U.S. entity, check with counsel. The United States is deemed to be located in the District of Columbia, as are foreign air carriers.

Filing by location of the debtor rather than filing by location of the collateral may change the required place of filing. The result of this change is that for the five-year period of the transition between Old 9 and New 9, if you would be required to file in different places under Old 9 and New 9, you must search in both places. Failure to search in both places could result in missing a valid filing against the debtor.

Filing of Financing Statement
Once the location of the debtor is determined, the place of filing is as follows (Section 9-501):

• The office designated for the filing or recording of mortgages on the related real property if the collateral is a fixture, or if the collateral is as-extracted materials (such as minerals) or timber. In New Jersey, this is the clerk's office in the county where the collateral is located.
  
  
• The central office designated by the appropriate state for all other collateral. In New Jersey, this is the State of New Jersey, Department of the Treasury, Commercial Recording (Division of Revenue, Business Support Services), 225 West State Street, P.O. Box 308, Trenton, NJ 08625.

You should note that if the mortgage contains an appropriate provision, a mortgage serves as a financing statement for fixtures, without the filing of a separate financing statement. The fixture filing included in the mortgage would have a term equal to that of the mortgage. (Section 9-502)

Requirements of Filing Forms
Old 9 permitted the individual states to determine the content and form of financing statements. This resulted in a hodgepodge of forms and rejections of filings for failure to use the proper form. New 9 provides standard forms for financing statements (UCC-1), addenda (UCC-1Ad) and amendments (UCC-3). The UCC-3 continues to function as a termination statement as well as an amendment. These forms will be accepted in most states.

You should also note that the debtor's signature is no longer required on the UCC-1 form (Section 9-502). This change was made to accommodate prospective electronic filing.

The financing statement must contain:

• The correct legal name of the debtor and the name of the secured party (Section 9-503). It is not necessary to include a trade name, and identification solely by debtor's trade name will invalidate the filing (Section 9-503). Filing statements may provide for multiple debtors (Section 9-503).
  
  
• An address for the debtor and Secured Party must be provided (Section 9-516).
  
  
• The debtor's type of entity (i.e., individual, partnership, corporation, etc.) must be identified, and if the debtor is a Registered Organization, (i.e., a corporation, limited liability company, limited partnership) the state of organization must be provided, together with the debtor's organization number (Section 9-516). The organization number is assigned by the state and, in New Jersey, may be found on most corporate status reports from independent search companies. In New Jersey, the number may also be found on the State's web page, https://www.nj.gov/. The failure to put this number on the UCC-1 will result in its rejection for filing.
  
  
• The financing statement must contain an indication of the collateral, which may be specific, by UCC category, or very broad (i.e., "all assets of debtor") (Section 9-504). A financing statement relating to real property must also contain an indication of the collateral covered, an indication that it is to be filed in the real property records, and a description of the real property to which the collateral is related (Section 9-502).

Term of Financing Statements
Financing statements continue to have a term of five years. Initial public financing and manufactured home filings have a term of 30 years, and may be continued thereafter. Continuation statements may be filed six months prior to the expiration date of a financing statement (Section 9-515).

Once the obligation secured by the collateral named in the financing statement is paid off, a secured party is required to provide a termination statement within 20 days of an authenticated request by a debtor (Section 9-513). If the secured party fails to provide the requested termination statement, the debtor may file a termination statement, which must indicate that the debtor authorized the filing (Section 9-509).

Name and Address Changes for Debtor
If a debtor changes its name to the point where the name change becomes "seriously misleading", the filing becomes unperfected four months after the name change (Section 9-507). The test for whether a name is seriously misleading is whether the filing would be discovered by a search of the correct name using the standard search logic employed by the filing office (Section 9-506).

If a debtor changes its location to a new jurisdiction, a secured party has four months in which to file in the new jurisdiction; after the four-month period, the filing statement becomes unperfected (Section 9-316). A change of location can mean that an individual debtor moves his residence to a new state, or that a corporation reincorporates in a different state and dissolves the entity which had entered into the secured transaction.

In the case of either a name or location change, a secured party can keep its filings perfected by filing amendments with the new jurisdiction or appropriate filing office within the four-month time frame (9-316). Failure to do so will cause the filings to become unperfected.

A financing statement remains perfected for a period of one year when the original debtor has transferred its interest in the collateral to a third party which has agreed to become the debtor and is located in another jurisdiction (Section 9-316). Again, a new filing must be made prior to the expiration of the one-year period.

This memo is not intended to be a complete explanation of the revisions to Article 9 of the Uniform Commercial Code, but merely seeks to bring certain changes to your attention. As always, questions regarding specific situations should be addressed to this office.