UCC Statements (AYU February 2024)

UCC Statements (AKA Financing Statements and Foreclosure)

Presented by Kay M. Creasman

A number of agents have recently (this week) asked questions about a UCC financing statement’s fate in a foreclosure. A financing statement is recorded when a lender wants to cover tangible personal property. The financing statement shows that the lender, who may be the seller of the tangible personality, has an interest in the property. Current examples include heat pump/air conditioning units, solar panels, replacement windows, security systems, etc. These are expensive items that are generally attached to the real estate and may become a fixture, an integral part of the property. They would certainly be included as assets by an appraiser for the lender.

If it’s clear the personal property is a fixture, such as replacement windows that have been installed, then the UCC statement recorded after a deed of trust that is being foreclosed would be inferior to the deed of trust, and the lien against the windows would no longer be enforceable against the real estate. However, with solar panels and other features necessary for the property to function, it’s possible the courts could conclude the personal property could be easily detached and removed from the real estate. As title insurers, we don’t want to be involved in the litigation that may arise from the lender with a UCC filed wanting to repossess their chattel.

Due to the uncertainty as to whether something is or is not a "fixture," (since title insurance is about risk identification and elimination) we require the UCC to be terminated (essentially, paid and released), subordinated to the new deed of trust being insured, or excepted to in Schedule B-II of the commitment/Schedule B of the policy. No lender will accept an exception for these matters, as they are part of the appraised value of the real estate.

If this problem pops up in your transactions, always feel free to contact VAUnderwriting@oldrepublictitle.com for guidance.