Your Guide to Perfecting Security Interests

Perfecting security interests is not as simple as it may seem.

Most people working in the banking industry know what a security interest is. For the uninitiated, it’s a form of property interest created by operation of law or by agreement to secure the performance of an obligation, typically a debt payment. If the borrower fails to fulfill his or her obligations, the bank is able to foreclose and collect the collateral.

Perfecting Security Interests

This article is about a topic related to security interests: perfection. The general concept of perfection is that lenders should either possess or at least have control over the actual collateral. This allows the lender to “put the world on notice” that they have a security interest (for instance, by filing a UCC-1 Financing Statement).

Not all security interests can or even should be “perfected.” Read on for an overview of some perfection guidelines pertaining to a few of the common types of collateral.

Fixtures

Fixtures, usually defined as equipment or furniture joined to the land or building, can be perfected in multiple ways:

If a mortgage is in place, wording within that agreement can require the perfection of fixtures on the property.

If no mortgage is in place, the lender can file a UCC-1 with land records in the jurisdiction of the property and fixtures.

Filing a UCC-1 with the Secretary of State (SoS) also will perfect fixtures.

Trademarks and Patents

Perfecting trademarks and patents should be completed by filing a UCC-1 with the SoS and filing a security agreement with the United States Patent and Trademark Office (USPTO).

Do your due diligence before attempting to perfect trademarks and patents. Parties have as much as three months to file for a transfer with the USPTO. That filing would take precedence, even if it is submitted later.

Copyright

Perfect a security interest in copyrights by submitting an Intellectual Property Security Agreement (IPSA) and a UCC-1. The IPSA goes to the US Copyright Office, and the UCC-1 goes to the appropriate SoS.

When filing with the US Copyright Office, it’s important to note that a security interest isn’t perfected if the copyright is unregistered.

Deposit Accounts

A deposit account security interest can only be perfected through “control.” You can obtain control via three different means:

The lender is the bank that maintains the deposit account

The lender enters into a control agreement with the borrower and the deposit account bank

The lender is a customer of the bank that maintains the deposit account

Any Document from Any Court in Any Jurisdiction

At All American Document Services, we perform on-site search, retrieval, preparation, filing and recording of a variety of documents at both the state and federal level. We have helped lenders, factoring companies, banks, corporations, and legal professionals clarify legal and financial risk since 2002.

If you need UCC, Judgment, Lien, or Trademark searches with quick turnaround time and accurate results, contact us today!