Revised Article 9 Hits Real Estate
By: MARY S. RANUM & BONNIE A. O'MALLEY
Spring 2001
If you are planning to record a UCC-1 Financing Statement as part of a real estate transaction, you will need to comply with Revised Article 9 of the Uniform Commercial Code, beginning July 1, 2001.
Under the revised Article, a mortgage evidencing a debt that contains a fixture financing statement will continue to be filed in the office of the County Recorder/Registrar of Titles where the real estate is located. A financing statement to perfect a security interest in "as-extracted" collateral, timber, or goods that are or are to become fixtures will also continue to be filed on the real estate records. A financing statement to perfect any other types of collateral covered by Revised Article 9, however, must be filed in the central filing office of the state in which the debtor is located. Where the debtor is a registered organization, Revised Article 9 deems the debtor to be located in its state of organization. For example, filings involving a Delaware Corporation must be filed in Delaware-even if the collateral is actually located elsewhere. This change in the place of filing is one of the revised Article's most significant changes.
The financing statement itself must also comply with the revised statute. You no longer need to state the federal identification number of the debtor but if the debtor is a registered entity, you must supply the state where the debtor is registered; the name must match exactly the name as it is registered with the state of organization.
Filings under existing Article 9 will, in most cases, still be valid. Thus, you should search for filings in jurisdictions under both Article 9 and Revised Article 9.
Under Revised Article 9's new definitions, an "account" includes, among other things, a right to payment of a monetary obligation, whether or not earned by performance, for property that has been or is to be sold, leased, licensed, assigned or otherwise disposed of. This definition includes assignments of mortgages and contracts for deed, including collateral assignments of sellers' interest in contracts for deed in the form of mortgages. The seller/assignor is the debtor and the purchaser/assignee is the secured party. Revised Article 9 will, thus, require filing a financing statement to perfect an interest in the right to payment. Treating a mortgage on a seller's interest in a contract for deed as a UCC security interest is problematic because it does not adequately address the status of the real estate records or the purchaser's right to obtain a deed when the contract is paid. A bill to address these issues has been introduced in the current session of the Minnesota Legislature.
Agricultural liens will now be perfected and enforced under Revised Article 9. The creation of such liens is still governed by other statutes. Agricultural liens are non-possessory statutory liens on a debtor's farm products in favor of a landlord or supplier of goods or services to the debtor in connection with the debtor's farming operations. Examples include landlord's liens, harvester's liens, and crop input liens. A voluntary security interest given by a farmer-debtor to a secured party is not an agricultural lien because it is not created by statute. A financing statement perfecting an agricultural lien must be filed in the central filing records of the state where the collateral is located - NOT in the state of the debtor's location and NOT in the county records. Therefore, if the debtor is a farmer and is located in one state but has collateral in another state, a secured party must search and file both in the jurisdiction where the farmer is located and in the jurisdictions in which collateral is located. Revised Article 9 does not address how agricultural liens should be handled during the five-year period when county filings under the existing law are still in effect, although a bill is pending before the Minnesota Legislature to address some of these issues.
Under the new law, there will no longer be any filings in the chattel records at the county level. In addition, searches for prior filings in the chattel records at the county level will be conducted at the central filing location. The Minnesota Secretary of State's office is working with the counties to establish satellite offices of the Secretary of State where searches and filings can be accomplished. Information about the satellite offices will be available in the spring of 2001 and will be posted on the Secretary of State's web site (http://www.sos.state.mn.us). The new form of the Financing Statement to be used after July 1, 2001 is available at http://www.iaca.org. If this form is used before July 1, 2001, it will be considered a non-standard form and additional filing fees will be required.