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Demystifying UCC Filings: A Guide for Commercial Property Owners and Potential Investors

Buying commercial property in the Chicagoland and Wisconsin markets can present an abundance of opportunities for the savvy investor, but it’s essential to understand every aspect of the transaction.

Many hopeful real estate moguls are unfamiliar with the specifics of what a Uniform Commercial Code (UCC) filing entails and its implications for their financial goals. Partnering with an experienced real estate team ensures due diligence and ongoing client education in an ever-changing landscape.

In this comprehensive guide, we’ll demystify UCC filings, empowering you with the knowledge necessary to navigate this facet of commercial property ownership effectively.

What is the Uniform Commercial Code?

The UCC is a set of laws adopted by all 50 states that govern all commercial transactions and interstate business. This includes things like equipment, inventory, and receivables (money owed by customers). It is a joint project of the Uniform Law Commission and the American Law Institute

A UCC (or UCC-1) filing is a legal mechanism that allows creditors to establish a security interest in personal property used as collateral for a loan or other financial obligation. This filing serves as a public notice, alerting other potential creditors and interested parties about the existing claim on the specified assets. It also prevents investors from using the same assets to guarantee multiple forms of financing.

Form UCC-3 is a multi-use document that lenders utilize to amend, continue, or terminate a UCC-1.

If a business defaults on a loan, UCC filings help determine the order in which creditors can satisfy their claims from the collateral. Creditors who file UCC financing statements first typically have priority over those who file later.

How UCC Filings Can Affect Your Commercial Property

This mechanism plays a critical role in protecting the interests of both lenders and borrowers in commercial real estate transactions. 

For lenders, a properly filed UCC ensures their priority claim on the collateral assets, minimizing the risk of losing their security interest in the event of competing claims or the borrower’s financial distress.

For borrowers, understanding UCC filings is equally important. Failure to comply with the requirements or neglecting to terminate existing filings properly can hinder future financing opportunities, as unresolved UCC filings may appear as outstanding liens on your assets, potentially deterring new lenders from extending credit.

While UCC filings primarily deal with personal property, they can potentially impact commercial real estate in a couple of ways:

Protecting Your Interests

A thorough title search conducted before purchasing commercial property is crucial. This search will uncover any UCC filings associated with the property, giving you a clear picture of potential encumbrances (claims or liens) on the title.

Here’s where title insurance from a highly regarded provider like Landtrust plays a vital role. Our comprehensive commercial title insurance policies protect you against financial losses arising from various issues, including those stemming from hidden UCC filings.

If a title search reveals a UCC filing associated with your commercial property, there are some steps you can take to resolve the matter in a timely manner.

Review the UCC filing carefully with your real estate team. It will detail the secured party (creditor) and the specific collateral involved. If the filing seems legitimate, reach out to the secured party (usually the lender) to understand the nature of the loan and the collateral involved. 

You may be able to negotiate the release of the UCC filing if the loan has been paid off or the collateral no longer applies to your property. If the statement appears inaccurate or you’re unsure how to proceed, seek guidance from a qualified real estate attorney experienced in these matters.

Your Trusted Partner

As with residential real estate, title insurance plays a significant role in successful commercial property transactions, offering protection for both lenders and borrowers. These policies provide a defense against fraud, clerical errors, defaults, or undetected encumbrances. 

At Landtrust Title Services, we’re experts in the complexities of investing in commercial real estate in the Upper Midwest. Our team of experienced professionals is here to guide you through every step of the process, from title searches and UCC analysis to providing comprehensive title insurance coverage.

Contact us today to discuss how our knowledgeable officers can safeguard your commercial property investment.

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