Understanding the Limitations of the Filing Office
Having a properly filed UCC financing statement can sometimes make all the difference in a creditor being paid or not paid on a loan. Filing a financing statement in the designated filing office is often the critical step in achieving a creditor’s protection of its security interest. However, it is important to note that the duties and responsibilities of the filing office are limited, and it is important to keep in mind that the filing office’s responsibilities are ministerial in nature. In accepting or rejecting a financing statement, the filing office does not:
Determine the legal sufficiency or insufficiency of a document;
Determine that a security interest in collateral exists or does not exist;
Determine that information in the document is correct or incorrect in whole or in part; or
Create a presumption that information in the document is correct or incorrect in whole or in part.
Therefore, just because a filing office accepts your UCC financing statement for filing, it does not guarantee that your financing statement was properly prepared or filed correctly.
The Uniform Commercial Code, in its official comments, indicates, “The rule also contemplates that searchers—not the filing office—will determine the significance and effectiveness of filed records.” Therefore, the burden must remain with secured creditors to properly perform their own due diligence when conducting searches. It is important to remember that the Article 9 filing system is a “notice filing” system. That means that the information in the filing office is not designed to provide all of the information and details needed to fully understand the underlying secured transaction. Conducting a search is only the starting point for the inquiry. Searchers must undertake further analysis and inquiry in order to understand the complete state of affairs.
Understanding the limitations of filing offices can help secured creditors understand that careful analysis must be taken both when filing financing statements and conducting searches. The burden rests with the secured creditor to make sure that it is fully doing its due diligence and not simply relying on whether or not a financing statement has been accepted for filing with a particular filing office.