Underwriting Manual: Uniform Commercial Code

State Supplements

View state supplements to the national underwriting manual.

Underwriting Manual Subtopic

In General

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The Uniform Commercial Code (UCC) is a body of law which attempts to codify and make uniform throughout the country all law relating to commercial transactions, such as conditional sales, contracts, pledges, and chattel mortgages. The UCC covers personal property transactions, including stocks and commercial paper. The main relevance of the UCC to real property is in the area of fixtures, as covered in Article 9 of the Code. Where a chattel is purchased on credit or is pledged as security, a security interest is created in the chattel by the execution of a security agreement. Rather than recording the agreement, the creditor would file a financing statement in the recorder's office. If the financing statement has been properly filed, the creditor, upon default, could repossess the chattel and remove it from the property. Each state must legislatively adopt the U.C.C. and typically state legislatures make minor modifications in the U.C.C. before adopting.

Underwriting Manual Subtopic


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A "fixture" is an article that was once personal property, but that has been installed in or attached to land or a building in some more or less permanent manner, so that such article is regarded in law as part of the real estate.

Nowhere in the Uniform Commercial Code is the term "fixture" explicitly defined. However, the code does provide that "goods are fixtures when they become so related to the particular real estate that in interest in them arises under real estate law."

This provision basically leaves the question of whether an item is a fixture or not to the law of each state.

In determining whether or not an article is a fixture, the courts apply the following tests:

  • The manner in which the article is attached to the real estate.
  • The character of the article and its adaption to the real estate.
  • The intention of the parties.
  • The title professional should be aware that some parties to transactions and draftsmen use the term to refer to items that would not be considered part of the real estate. For example, shelving units for a grocery store.

Underwriting Manual Subtopic

Security Agreement

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As defined in Article 9 of the Uniform Commercial Code "security agreement" means an agreement which creates or provides for a "security interest."

In order for any party to have a security interest in property, enforceable against the debtor or third parties, it is necessary that:

  • The security agreement contain a description of the collateral (the fixture).
  • The security agreement be signed by the debtor.
  • The value of the collateral be given.
  • The debtor has rights in the collateral (the fixture).

The "security agreement" replaces the old "chattel mortgage" and "conditional sale contract."

Underwriting Manual Subtopic

Financing Statement

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Generally the requirements a financing statement must meet to impart constructive notice of and to perfect, as to third persons, a security interest in collateral are set forth in Sec. 9-402 of the Revised Code.

This section requires:

  • The financing statement must substantially contain the following:

    • The names and addresses of the debtor and the secured party.
    • A description of the articles by item or type.
    • A statement that the goods are to become fixtures.
    • A description of the real estate to which the articles are to be affixed.
    • A direction that the instrument is to be filed for record in the real estate records.
    • The name of the record owner of the real estate if the debtor does not have an interest therein.

  • The statement must be signed by the debtor, although under Sec. 9-402(2) it will be sufficient if signed by the secured party instead of the debtor in some situations as where

    • The collateral was already subject to a collateral interest in another jurisdiction;
    • The location of the debtor is changed to the subject state;
    • To cover proceeds;
    • The filing has lapsed as to the collateral; or the collateral was acquired by the debtor after it had changed its name, identity or corporate structure.

Generally, in order for the security interest in personal property, (fixture), to be enforceable, a financing statement, must be filed in the office where any mortgage on the real estate would be filed or recorded.

When thus filed, the financing statement gives notice to all that there exists a security interest in the article. Subsequent purchasers of the real estate and subsequent mortgagees of the land are bound by this filing, and if a default occurs under the security agreement, the articles can be repossessed and removed by the security holder. If the financing statement is not filed as required by law, a subsequent purchaser or mortgagee of the land is protected against removal of the articles.

Underwriting Manual Subtopic

Place Of Filing Of Financing Statement

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Section 9-401 of the revised Uniform Commercial Code provides that when a financing statement is filed as a fixture filing and the collateral is or is to become fixtures, the proper place to file in order to perfect the security interest in the goods is in the office where a mortgage on the real estate would be filed or recorded.

Section 9-403(7) further directs the filing officer to index the statement under the name of the debtor and any owner of record shown in the financing statement in the same fashion as if the latter were the mortgagor in a mortgage of the real estate described, and, to the extent that the law of the state provides for indexing mortgages under the name of the mortgagee, under the name of the secured party as if he were the mortgagee thereunder or where indexing is by description in the same fashion as if the financing statement were a mortgage of the real estate discussed.

Under these provisions, therefore, a financing statement is to be filed by a recorder in the real estate records of his county and be indexed in the grantor-grantee index under the name of the party having an interest of record in the described real property, thus assuring its appearance in the chain of title.

Caveat: State law must be reviewed to determine the (local) correctness of the above statement, and for the purpose of determining whether it is necessary to file in the office of the Secretary of State.

Underwriting Manual Subtopic

Duration Of The Filing Of The Financing Statement

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In general, the duration of the filing of a financing statement continues for a period of five years from the date of filing, unless a continuation is filed prior to the lapse (Section 9-403 of the U.C.C. Code).

Caveat: The U.C.C. contains some exceptions to the five-year limitation period. State law must also be reviewed in this respect.

Underwriting Manual Subtopic

Priority Of U.C.C.

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Generally a properly perfected security in fixtures will have priority over an earlier mortgage. Do not waive a financing statement because of a nonjudicial foreclosure of a prior mortgage. If there has been a judicial foreclosure, do not waive a financing statement unless notice was given to the creditor.