A UCC 1 agreement is a written deposit that declares a lender’s interest in a borrower’s property used as collateral for a loan. It creates a lien, securing the loan, and debtors file it with the secretary of state. The agreement must provide information about the debtor, property, and debt. When the debt is paid, the lien is revoked. Creditors should ensure the lien is removed after the debt is resolved.
A Uniform Commercial Code (UCC) 1 agreement is a formal written deposit declaring a lender’s interest in a borrower’s property used as collateral for a loan. The term ‘agreement’ in this sense is a bit misleading, as the form is not a legal agreement and the debtor is not involved in filing and processing the paperwork. Some people prefer the terms “funding statement” or “UCC 1 notice” because they are more accurate descriptions than a UCC 1 agreement.
The Uniform Commercial Code is a set of standardized laws relating to the process of doing business in the United States. Individual states have chosen to adopt the entire UCC or adapt parts of it, making documents such as a UCC Agreement 1 fairly standard across all states. The ‘1’ in the name is a reference to the section of the UCC where the relevant legal information can be found.
Debtors typically file a UCC 1 agreement with the secretary of state for the state in which they operate. It serves to “perfect” the guarantee agreement connected to the loan by creating a public notice that warns of the fact that the lender has a right of guarantee on the asset. This creates a lien, which makes it impossible for the debtor to transfer the asset without the explicit consent of the creditor, and creates a secured loan. If the debtor defaults, the creditor can foreclose on the property and sell it to recover the debt.
The UCC 1 agreement must provide information about the debtor, the property and the debt. Any type of property can be indicated in the declaration, as long as it is clearly defined. When the debt is paid, the lien is revoked. The person owns free and unrestricted property and can dispose of it at will, without receiving authorization from the lender. If a person goes bankrupt, secured debt creditors are first in line when assets are liquidated and are more likely to be at least partially repaid.
When people get into debt relationships and their creditors file for a UCC 1 settlement, they should ensure that the lien is removed after the debt is resolved. The title of the property should be clear, showing no impediment to the transfer. Sometimes creditors process documents slowly or lose documents, retaining a lien by mistake, and in other cases there may be errors with the other party’s processing. It is recommended that you request a new copy of the title from the property to confirm that no lien exists.
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