The amendments to Article 9 are scheduled to take effect in a few short months. All creditors that file UCC Financing Statements to secure their interests in personal property need to understand the changes taking place.
As Article 9 stands presently, in order for your security interest to be properly perfected, you must name an organization with the “registered name” as found in the public records of the applicable jurisdiction. This requirement has resulted in the necessity of creditors having to go to the expense of obtaining a certified copy of the current certificate of organization to make sure they properly named their debtor.
With regard to individual debtors, Article 9 requires creditors to provide the “individual name” of the person. If the “individual name” listed on the documents is not the actual name of the person, it will not adversely affect the perfection of the security interest, provided that the name is sufficient to lead to the correct name through a reasonable search. However, there are a tremendous number of “perfection” mistakes involving individual debtors due to such factors as foreign names having long and unfamiliar spellings, and maiden vs. married names for women.
In order to deal with these “perfection” issues, the amendments to Article 9 contain two alternate provisions. They are aptly named “Alternative A” and “Alternative B”.
- Alternative A is an “Only-if” rule. It sets forth that the only way to perfect a security interest on an individual is to use the name on the debtor’s unexpired driver’s license.
- Alternative B is a “safe harbor” rule, which retains the present concept of “individual name” as ok for perfection as long as you can find your debtor. However, it does specifically provide that using the name on the debtor’s driver’s license will unequivocally result in the perfection of the security interest.
Although Alternative B does seem to be the better alternative, most states are adopting Alternative A. As a result of this, we highly recommend that you obtain a copy of the debtor’s driver’s license and keep it in your file when your UCC lien.
Forewarned is forearmed!