A UCC amendment is only effective to the extent it was filed by a person with authority to do so. Generally, it is the secured party of record that must authorize the filing of an amendment, but the debtor’s authorization is required in certain cases.

Because the effectiveness of any UCC record depends on authorization by the proper party, it is important for filers and searchers to understand the significance of authority reflected in the public record. This article discusses what authority is required to file UCC amendments under Article 9 and how to determine whether a record was authorized. It also offers best practice recommendations for both filers and searchers.

Effectiveness of Filed Amendments

A UCC record is effective under Section 9-510(a) only to the extent it was filed by a person who may do so under Section 9-509. A person may file most types of amendments under Section 9-509(d), including terminations and continuations, only if the secured party of record authorizes the filing.

If there is more than one secured party of record, Section 9-510(b) provides that a record authorized by one of them does not affect the financing statement with respect to another secured party of record. Thus, each secured party must authorize an amendment for the record to be fully effective.

In some cases it is the debtor that must authorize the filing of an amendment. For example, under Section 9-509(a) the debtor must authorize an amendment that adds a debtor or adds collateral. The debtor can also be authorized to file a termination statement by following the statutory process provided in Section 9-513.

The Filer’s Authority

While an amendment must be authorized by the proper party to be effective, Article 9 does not require UCC records to provide evidence of the filer’s authority. For example, signatures of the authorizing parties are not required on a UCC record, either as an element of sufficiency under Section 9-502(a), or to avoid rejection under Section 9-516(b).

Signatures were required for UCC records filed under former Article 9. However, those signatures were of limited use for establishing the filer’s authority. Former Article 9 did not require notarized signatures, nor did filing offices verify party signatures.

A UCC amendment record simply cannot establish the filer’s authority with certainty. Secured parties routinely delegate their authority to file an amendment, especially termination statements, to other lenders or the debtor. The determination of whether the filer has properly delegated authority to file depends on the common law of agency, not the information provided in the amendment record. The only way to reliably verify a filer’s authority is to conduct further inquiry beyond the public record. That usually requires confirmation from the party that was required to authorize the record.

Nevertheless, the Amendment form includes space in Section 9 for the filer to provide the name of the secured party of record that authorized the amendment. The space can also be used to provide the name of the debtor that authorized a termination statement, amendment to add collateral or an amendment to add a debtor.

Unfortunately for UCC searchers, the name provided in Section 9 is not a reliable indicator that the proper party authorized the amendment. A fraudulent filer, for example, can enter the secured party’s name on a termination statement without its knowledge or approval. The termination statement would not be effective, but that would not be readily apparent to anyone reviewing the results of a search that disclosed the record.

Filers sometimes struggle to determine the correct name to provide in Section 9 following an event involving the secured party, such as assignment of the security interest, change in the secured party’s name or a change to the secured party’s business structure. The filer’s concern typically is that the amendment will be ineffective if the proper name is not listed in Section 9.

The good news for amendment filers is that name provided in Section 9 generally has no effect on the sufficiency of the record. Section 9 is not required by any provision in Article 9. Financing statements are effective even though the record does not contain an equivalent section. Filing offices cannot refuse to accept a record under Section 9-516(b) based on the name provided in Section 9, even if the name is left blank. It is the filer’s authority that matters, not any indication on the record.

As a practical matter, it is very common for amendments to provide a name in Section 9 other than that of the secured party of record or debtor that authorized the filing. Payoff letters, for example, routinely include express authorization for the debtor to file a termination statement on behalf of the secured party. As long as the proper party authorized the filing, the amendment will be effective.

Amendment Filing Best Practices

As a general rule, filers should provide the actual name of the secured party that authorized the filing in Section 9 of the amendment form. However, there is little risk if the name does not match previous secured party names provided on the financing statement.  The authority of the filer controls whether the record is effective, not the name provided in Section 9. 

Filers have flexibility on how to provide the name of the authorizing party.  Unlike the exacting requirements for sufficiency of a debtor name, just about anything works for the name provided in Section 9. For example, “XYZ BANK AS ASSIGNEE OF ABC BANK” can be a helpful indicator for searchers when XYZ Bank is not a secured party of record. The explanatory nature of the name provides relevant information to help guide the searcher.

When more than one party has authorized the filing of an amendment, Section 9 has a significant limitation. It has a field for only one party name. When there are multiple secured parties that authorized the filing, the filer can prepare separate amendment records. However, a simpler solution is to file one amendment with an attached exhibit. On the exhibit, the filer can list the names of all the parties that authorized the filing below a statement such as “Additional parties that authorized the filing of this amendment.”

Search Best Practices

The best practice for searchers is to not rely exclusively on Section 9 of the amendment form to establish the filer’s authority. While Section 9 can point a searcher in the right direction for conducting further inquiry, it cannot be relied upon with certainty. The only method for a searcher to determine the filer’s actual authority and, therefore, effectiveness of the amendment, is to obtain verification directly from the required party.

As a practical matter, searchers cannot confirm the filer’s authority for every amendment disclosed by a UCC search. The searcher needs to balance the time and cost required to verify the filer’s authority with the risk involved in the transaction and the type of amendment involved. The consequences for a searcher’s failure to verify that a termination statement was authorized can be substantially more severe than for an amendment to change the secured party’s address.

Conclusion

Article 9 does not require UCC records to include a statement of authority to file, either for sufficiency or to avoid rejection by the filing office. Nevertheless, it is in the best interest of filers to point searchers in the right direction by providing an indication of authority in Section 9 of the amendment.

Searchers must be careful not to rely on Section 9 of the amendment to determine the filer’s authority. This is especially true when reviewing termination statements for unlapsed financing statements. The best practice if there is any question about the filer’s authority and, therefore, the effectiveness of the record, is to obtain confirmation directly from the necessary party. Most often that is the secured party of record.

Please feel free to contact us with any questions or comments at communications@cscinfo.com.