Perfection When Collateral is Held in a Trust

This presentation is not intended to serve as legal advice. You should not act or rely on any information contained in this presentation without first seeking the advice of an attorney.

Perfection When Perfection When Collateral is Held in a Collateral is Held in a TrustTrust20152015

Page 2© 2015 by Corporation Service Company®

Trust-Related UCC Process is not IntuitiveThe name of the actual debtor may not be sufficient.Location of the debtor for filing purposes.

Temptation to Impute Application of Other LawForm of name used for real estate, probate, or other law may be different from that required by UCC.

Temptation to Overly Complicate UCC RecordsExtra information in name fields.Long history of trustee succession and name changes.Giving too much significance to matters that are irrelevant for UCC purposes.

Introduction & Overview


Type of TrustDifferent rules apply for filing and searching depending on whether the collateral is held by a business trust or common-law trust.

Business Trust RulesType of Debtor: registered organization.Location of the Debtor: where organized. See § 9-307(e).Debtor Name Sufficiency: § 9-503(a)(1).

Common-Law /Testamentary Trust RulesType of Debtor: trusteeLocation of the Debtor: location of trustee. See § 9-307(b).Debtor Name Sufficiency: § 9-503(a)(3).

Trust Types


Obtain the Organic Record of the Trust“Organic Record” may go by various names

• Declaration of Trust• Trust Agreement

Review of the organic record is essential!• Without the trust’s organic record, a party cannot determine the

correct names for filing or search purposes!

Other Due Diligence StepsIdentify name of trust if one is specified in the organic record.Identify Settlor (aka “Grantor” or “Trustor”)Identify Current Trustee(s)

Trust-Related Due Diligence – The Starting Point


Law Governing Perfection & Priority: § 9-301The law of the debtor’s location as determined under § 9-307

Identify Debtor TrusteeAt the debtor’s place of business (where the debtor carries on its affairs). See § 9-307 the Trustee(s).

Location of TrusteeLocation of an Individual Trustee:

• Principal ResidenceLocation of Registered Organization Trustee:

• State of OrganizationLocation of Other Organization:

• Place of Business or Chief Executive OfficeFiling Office with State of Debtor’s Location

General Rule: central filing office designated by § 9-501(a)(2).Exception: real estate records for fixture filings. § 9-501(a)(1).

Trust-Related Due Diligence – Filing Location


Trust Filing Preparation Essentials

The Debtor Name


Which Name is Correct?


Purpose of the § 9-503(a) Debtor Name:To allow retrieval of the record using consistent and reliable rules.

Debtor Name is NOT Intended to:Identify the debtorIndicate capacityExplain anythingProvide helpful information for the searcher

Result:Financing statement may use a name to represent the debtor, not the actual name of the debtor.UCC records related to collateral held in a common-law or testamentary trust use a name to represent the debtor for purposes of the financing statement.

Financing Statement Debtor Name


Debtor Name Must Comply with § 9-503(a)§ 9-503(a) sets forth what constitutes the debtor name for purposes of the financing statement.

• See § 9-503(a) cmt. 2.Any deviation from correct name, no matter how small, prevents compliance with § 9-503(a).

Effect of Failure to Comply with § 9-503(a):Insufficient debtor name makes financing statement seriously misleading. § 9-506(b).

Exception: § 9-506(c)If a search under the debtor’s correct name, using the filing office’s standard search logic, would disclose the record, then the insufficient name does not render the record seriously misleading.

Trust-Related Debtor Name Sufficiency


Organization Name Search Logic Disregards:CasePunctuationEnding Noise Words“The” at BeginningSpaces

Individual Name Search Logic Disregards:Nothing

Standard Search Logic – § 9-506(c)


Name The J-Team, Inc. The J-Team, Icn.

Case THE J-TEAM, INC. THE J-TEAM, ICN.

Punctuation THE J TEAM INC THE J TEAM ICN

Endings THE J TEAM THE J TEAM ICN

“The” J TEAM J TEAM ICN

Spaces JTEAM JTEAMICN

Normalized Name JTEAM JTEAMICN

Standard Search Logic – Normalization

X


Standard Search Logic Example

Correct Name: The Harper Realty Trust

Normalized: HARPERREALTY

Filed Name: The Harper Realty Trust, Gregory Gaudi Trustee

Normalized: HARPERREALTYTRUSTGREGORYGAUDI

HARPERREALTY ≠ HARPERREALTYTRUSTGREGORYGAUDI


§ 9-503. Name of Debtor and Secured Party(a) Sufficiency of debtor’s name. A financing statement sufficiently provides the name of the

debtor:…

(3) if the collateral is held in a trust that is not a registered organization, only if the financing statement:

(A) provides as the name of the debtor:(i) if the organic record of the trust specifies a name for the trust, the name

specified; or(ii) if the organic record of the trust does not specify a name for the trust, the

name of the settlor or testator; and(B) in a separate part of the financing statement:

(i) if the name is provided in accordance with subparagraph (A)(i), indicates that the collateral is held in a trust; or

(ii) if the name is provided in accordance with subparagraph (A)(ii), provides additional information sufficient to distinguish the trust from other trusts having one or more of the same settlors or the same testator and indicates that the collateral is held in a trust, unless the additional information so indicates.

Trust-Related Debtor Name – § 9-503(a)(3)


Financing Statement Name RequirementsName of Trust

• OR, if no name is specified,Name of Settlor or Testator

• Name of Trustee is Not Sufficient!Other § 9-503(a)(3)(B) Sufficiency Requisites

Additional Information for name of Settlor or TestatorIndication that Collateral is Held in a Trust

§ 9-503(a)(3)(B) sufficiency requirements are in addition to those found in § 9-502!

Dissecting § 9-503(a)(3)


Name Specified in the Organic RecordCommon Law TrustTestamentary Trust

“Specified” Defined:To mention specifically.To state in full or explicit terms.To point out.To state precisely or in detail.To distinguish by words one thing from another.

Source: Blacks Law Dictionary 1399 (6th ed. 1990)

§ 9-503(a)(3)(A) Name of the Trust


“Specified”

Does this language “specify” a name for the trust?


Includes the word “Trustee”Any statement that indicates capacity generally is not part of the name.

Names Continued or Referenced ElsewhereFiling offices transcribe text exactly as it appears.

Agreement Listed as DebtorDocument cannot be a debtor.Not sufficient unless it is the name specified.

Abbreviations such as: “UDT,” “UAT,” or “FBO”Indicates descriptive information.

Parenthetical InformationFiling office will index parenthetical information as part of the name.

Name Exceeds One Line.Indicates added information that is not part of the name.

Name of the Trust: Red Flags


Red Flags: The Word “Trustee”

As Indexed by the Secretary of State

1. Name of Trustee is not sufficient as name of the debtor.2. Individual names must be provided in individual name fields.3. Record did not include name of trust or name of settlor.

Name of Trustee is not sufficient as name of the debtor under § 9-503(a)(3).


Red Flags: Name Continued Elsewhere

All text in the name field becomes the debtor name!


Red Flags: Agreement Listed As Debtor

A document, electronic or paper, cannot be a debtor!


Red Flags: Abbreviations

“FBO” “DTD” “UA” “UTA” “UAD” & “UDT”

All generally precede descriptive information.


Red Flags: Parenthetical Info

TWINLAKESCONDOMINIUMTRUSTFORCLARITYPLEASESEEATTACHEDEXHIBITAFORDEBTOR

TWINLAKESCONDOMINIUMTRUST


Red Flags: Name Exceeds 1 Line

Length exceeds filing office field size. The only unique identifier was not indexed, thereby preventing retrieval!


Common Errors: Name Field is the Name


Use Name Specified in Organic RecordProvide the name exactly as it is specified.Do not abbreviate or condense name.

Omit Superfluous InformationName of TrusteeName of BeneficiaryDate of Trust (unless part of specified name)

Provide Trust Name as Organization Debtor NameDebtor name goes in the field that corresponds to the nature of the name, not the nature of the actual debtor.

Best Practices: Name of the Trust


Identity of Settlor or TestatorCommon Law Trust may have an individual or organization as settlor.Testamentary Trust will always have an individual as the testator.

Settlor/Testator Name Safe Harbor § 9-503(h)Registered Organization Settlor: same rule that would apply to other registered organization debtor names. See § 9-503(h)(1).Other Settlor or Testator: name of the settlor or testator indicated in the trust’s organic record. See § 9-503(h)(1).

Name of the Settlor or Testator


Individual Settlor/Testator NameSame practice as for the name of an individual debtor.Enter name in form fields designated for an individual debtor name.

Organization Settlor NameAlways enter the organizational name in the organization name field.Applies to registered organization settlors and any name that is not that of an individual.

Providing Name of the Settlor or Testator


Common Errors: Name of the Settlor

1. Indication of capacity will make record seriously misleading.2. Including trust description will make record seriously misleading.

1. Individual name must be provided in individual name fields. 2. Capacity and additional information should be omitted.

Cannot possibly be searched in this format.


Use Name Indicated in Organic RecordProvide the name exactly as it is indicated.Do not abbreviate or condense name.

Omit Superfluous InformationIndication of CapacityStatus of SettlorTrust Information

Provide Name as Required for Type of PersonOrganization settlor name must be provided in organization name fields.Individual settlor/testator name must be provided in individual name fields.

Best Practices: Name of the Settlor/Testator


Additional Trust-Related Debtor Name Requirements

Distinguishing InformationIndication


PurposeDistinguish the relevant trust from other trusts with the same settlor(s)/testator(s).

Content Best PracticesIdentify the specific trust citing organic record and date.Explain relation of debtor name listed on financing statement.

Caution: Do Not Provide as Part of the Debtor Name!Distinguishing information is not a part of the debtor name.Must be “in a separate part of the financing statement.”

How to Provide, Option 1:Use Addendum UCC1Ad Item 17.

Distinguishing Information

Debtor name provided as settlor under Declaration of Trust dated 11/3/2003


How to Provide, Option 2:Provide in UCC1 collateral field or UCC1AD collateral field.

Distinguishing Information

How to Provide, Option 3:Provide as an attached exhibit.


Required in All CasesThe indication is required regardless of whether name of trust or name of settlor/testator is provided.May be included as part of additional information for name of settlor/testator.

Cannot be Made in the Debtor NameIndication must be provided in a separate part of the financing statement. See § 9-503(a)(3)(B).This is a change from former law, which only required an indication if the debtor name did not already indicate the debtor was a trust or trustee.

Best Practice: Always Check Box in UCC1 Item 5

Indication that Collateral is Held in a Trust

X


General Debtor Address RequirementsFinancing statement must provide a mailing address for the debtor.No single address type is necessarily correct.

• Street• P.O. Box

Effect of Address RequirementsLack of address or incorrect address does not make a financing statement seriously misleading. Address required only to avoid rejection under 9-516(b).Address is not required for sufficiency of a financing statement under 9-502(a).Caution: A missing or incorrect address could have a priority impact under 9-338.

Trust-Related Debtor Address


Address is for the Debtor, Not Debtor Namee.g., the trustee’s address for a common law trust.

Address May Include Distinguishing InfoEnsures that trustee recognizes significance of the mail.

Other Trust-Related Issues: Debtor Address


No Access to Organic DocumentsCannot proceed.

Unclear Whether Name is SpecifiedFile on purported name and settlor as two separate debtors.

Multiple Debtor Trustees Be sure to file in the location of each trustee.

Mix of Trust & Non-Trust-Related DebtorsFile separate financing statements.

Settlor Wants AnonymityTough.

Other Trust-Related Issues: Filing


Trust-Related Searches

Best Practices


Begin with the Trust’s Organic RecordsNecessary to determine what name(s) must be searched.

Identify Trustee(s)Search in the state where each trustee is located.

Names to Search Possible names of the trust, including variations. Names of settlors/testators.Name of trustee is optional.

Search Best Practices


Do Not Add to the NameProvide additional information and indication in a separate part of the financing statement.

Do Not Provide Name of TrusteeName of trustee is not sufficient, unless the trustee is also the settlor of an unnamed trust.

Do Not Indicate Debtor Name CapacityCapacity indications normally cause the name to render the financing statement seriously misleading.

Do Not Invent a Name for the TrustName must be specified!

Avoiding Trust-Related Name Errors


Thank You!

Paul HodnefieldAssociate General CounselCorporation Service CompanyDirect: 651-494-1730Toll Free: 800-927-9801 x 61730 Cell: 952-649-1555 Email: [email protected]

This presentation is not intended to be legal advice. You should not act or rely on any information contained in this presentation without seeking the advice of an attorney.

Q & A

Services

Perfection When Collateral is Held in a Trust