The UCC Division of the Massachusetts Secretary of the Commonwealth (“Massachusetts Secretary”) is about to make a change to its UCC standard search logic (“SSL”) that may impact how secured parties search UCC records and prepare UCC financing statements for filing in the Commonwealth. The change may also render some currently effective financing statements seriously misleading, and require amendments to currently filed financing statements. Precise adherence to debtor names in searching for liens and preparing financing statements will be even more critical than it is now. The new SSL will no longer disregard ending “noise words,” as is done by the current SSL. (“Noise words” are words, phrases or abbreviations at the end of an organization name that indicate the existence or nature of the organization, for example, “Corporation,” “LLC” and “Limited Partnership”). The changes would eliminate 950 CMR § 140.49(5), which provides that words and abbreviations at the end of a name are disregarded for purposes of the SSL. It is expected that the revised search logic will be implemented on or about March 1, 2010.
The SSL change will affect filed financing statements that provide debtor names with minor errors in the ending noise words. Under UCC § 9-506(c), if a search under the debtor’s correct name, using the filing office’s standard search logic, would disclose the record, the incorrect debtor name does not make the financing statement seriously misleading. Following the SSL change in Massachusetts, a debtor name with errors in the ending noise words will not comply with UCC § 9-503(a) governing the sufficiency of a debtor’s name. Section 9-506(b) provides that a debtor name that fails to comply with § 9-503(a) makes the financing statement seriously misleading.
Currently, a debtor name provided as “ABC, INC.” would not make a financing statement filed with the Massachusetts Secretary seriously misleading if the correct debtor name was “ABC CORPORATION.” The current SSL would find the name with the incorrect noise word because it disregards the endings “INC” and “CORPORATION” in each name. Therefore, Section 9-506(c) prevents the error in the filed debtor name from making the financing statement seriously misleading. Similarly, for purposes of a search of the UCC records, secured parties will want to be sure to search the exact debtor name, because following the change, the SSL will no longer disclose “ABC, INC.” on a search of the correct name “ABC CORPORATION.” The searcher might also request a “wild card” search of “ABC” alone if it is not sure what the correct debtor name is, or to turn up additional filings against similar names. Any filed financing statement that provides a debtor name with incorrect ending noise words will become seriously misleading. Secured parties should not rely on SSL for sufficiency of the financing statements it files, but to the extent they did, they may find themselves unperfected.
Secured parties can take three actions now to reduce the risk of becoming unperfected. First, the secured party should identify any financing statements they have filed with the Massachusetts Secretary that may contain mistakes in the debtor name ending noise words. Second, if use of an incorrect ending noise word is suspected, the secured party should order a certified search on the correct name of the debtor to ensure the record is currently sufficient under Section 9-506(c). The certified search uses the filing office SSL and will serve as evidence that the name provided did not make the financing statement seriously misleading prior to the SSL change. Finally, the secured party must file an amendment to add the correct debtor name to the financing statement.
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This article was originally published by Bingham McCutchen LLP.