In 2010 the National Conference of Commissioners on Uniform State Laws approved proposed amendments to Article 9 of the Uniform Commercial Code ("2010 Amendments"). The 2010 Amendments are in the process of being adopted by each state with an effective date of July 1, 2013. Most of the 2010 Amendments are just clarifications to provisions of revised Article 9 that came into effect on July 1, 2001. Some of the proposed changes under the 2010 Amendments include: definition of an organization's "public organic record" for purpose of determining a registered organization's name; clarification on the "location" of a debtor and revisions to the filing requirements against trusts and estates. One of the 2010 Amendments is expected to have a considerable impact on how a secured party identifies an individual debtor on its financing statement.

Current Article 9 simply requires that for individual debtors, a secured party use the "name of the debtor" on its financing statement. Due to nicknames, changing marital status and cultural differences, determining the correct "name of the debtor" has proven to be, at times, a challenge for secured parties.   Common law provides that a secured party should use the name an individual debtor is "commonly known by," but courts have gone in different directions in determining what is sufficient evidence of a "commonly known as" name. For example, different courts have ruled that the name "Mike" is both sufficient and insufficient for identifying an individual debtor with the first name "Michael". See In re Erwin, 50 UCC Rep Serv 2d 933, 2003 Bankr. LEXIS 692 (Bankr. D. Kan., June 17, 2003) and In re Larsen, 2010 WL 909138, 72, UCC Rep.2d 187 (Bankr. S.D. Iowa 2010).

The proposed 2010 Amendments provide two alternative approaches to determining the individual debtor's correct name for filing a financing statement. Alterative A provides that a secured party has properly perfected against an individual debtor "only if" the debtor's name on the financing statement matches the debtor's name as it appears on its state issued driver's license (or state issued identification card).   If the individual debtor does not have a driver's license (or ID card), then the secured party should use the individual's first name and surname.

Alternative B is commonly referred to as the "safe harbor" alternative. The provision allows for filing against the "name of the debtor" as provided under current Article 9, but provides a safe harbor for using the name designated on a state issued driver's licenses or state ID card.

While the requirement to use the debtor's driver's license in Alternative A provides some uniformity to filings and search requirements for secured parties, it has also raised some concern regarding what will happen when a debtor's driver's license expires? For example, does a financing statement filed using an individual's driver's license become ineffective if the debtor changes its name when he or she renews his or her license? Is the secured party obligated to obtain an updated driver's license during the life of the loan?   However, if a state has adopted the safe harbor alternative, the secured party will continue to have the burden of searching the debtor's name under a variety of "commonly known as" names and not just rely on the debtor's driver's license. Finally, each state's option to adopt either Alternative A or B, or to adopt their own modified version of Alternative A or B, will require secured parties to research each state's individual debtor name requirements when searching and filing against individual debtors, instead of relying on a uniform search criteria in all states.

The changes proposed under the 2010 Amendments for the most part will not create significant changes for Lenders, but its in Lenders' best interest to familiarize themselves with these amendments now so that they can determine what changes, if any, may impact their closing and servicing practices and adopt policies to address those changes before the July 1, 2013 effective date.  

For any questions about the 2010 Amendment or Article 9, please contact Kim at krayer@starfieldsmith.com or 

(215) 542-7070.

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