A secured party should pay attention to a change in a borrower`s legal name, as a name change can affect the priority of a lender`s security right. In order for a lender to obtain an “advanced” lien on business assets such as accounts receivable, equipment and inventory, a lender must, among other things, prepare and file a UCC-1 financing statement (a “UCC”). To prepare a valid UCC, the lender must accurately include certain information in the UCC financing statement and then submit it to the correct point of deposit, which is usually the borrower`s founding status. It is very important that the UCC includes the exact legal name of the borrower. This is crucial to comply with the so-called “research logic” used by the UCC reporting authority (usually the Secretary of State`s office in the borrower`s founding state) to allow other parties to determine the priority of a secured party. Assuming that a secured party has met the other requirements to obtain and perfect its lien on a borrower`s assets covered by the UCC financing statement (which are other requirements beyond the scope of that contribution), the first lender to deposit a valid UCC will hold a first priority lien on those assets. Privilege priority is crucial if the borrower defaults on their loan. The lender who submitted the first application is first reimbursed by the liquidation of the borrower`s assets, and if there is nothing left after the disbursement of the first priority lender, the lender holding a second priority lien will not receive any payment from the sale of the borrower`s assets and, without personal or alternative security, will not be refunded. The main guarantee of the loan is the General Commercial Security Agreement (GBSA), which grants the bank a security right in all the commercial assets of the borrowing company. You have further developed your security right by submitting a Uniform Commercial Code (UCC) financing statement to the State`s Central Filing Registry. In Wisconsin, we file with the Wisconsin Department of Financial Institutions (DFI), but in other states, the submission is usually made to the Office of the Secretary of State (SOS). The UCC statement designates the LLC borrower as the debtor and the bank as the secured party. The file office indexes this UCC declaration under the debtor`s name, and it is crucial that the name is correct.
Typos have threatened the privilege and priority of security interests in too many cases where they are considered “seriously misleading”. A legal name change requires a change in UCC financing status, as if there had been a merger or purchase and acquisition of the company by another company where the successor name is different from your borrower`s original name. Credit documents typically require an issuing company to notify the lender or obtain the lender`s consent for a change in name, organizational status, or change of organizational documents. Therefore, a borrower must inform their lender of these changes, otherwise they could be technically in default with their credit documents. While most loan agreements include an agreement that requires a borrower to obtain the lender`s consent to any change in name, organizational status, or change in the borrower`s organizational documents, an agreement is only a promise and does not adequately protect a secured lender in a name change situation. If, despite this promise, the borrower changes his name without informing the lender, the lender could still lose his first-ranking privilege over the newly acquired assets to another lender after four (4) months. If the borrower makes a fundamental change to their business, such as a merger with another company, issues such as name changes are usually discussed with their lender, but if the name change is due to a new marketing plan, a borrower may not think about informing their lender. However, it is not uncommon for a borrower to change their name after a loan has been granted to a borrower. This can be done for a variety of reasons, but can be easily achieved by submitting a simple form to the Secretary of State and paying a modest deposit fee. New lenders who plan to lend money to a borrower will conduct UCC research and submit their mutual funds under the borrower`s new name, not the old name.
The question therefore arises as to which lender will have a first-ranking lien on the borrower`s assets, the one deposited under the old name or the one deposited under the new name. The general rule is that there is a four (4) month “safe haven” for the existing lender who submitted under the old name. This means that the lender who filed its application under the former name will continue to have a senior lien on the borrower`s assets registered in the UCC for the first four (4) months following the date of the name change. However, at the end of the four months, unless the first lender has filed an amended UCC indicating the change of the borrower`s name, the first lender no longer has a senior lien on assets that the borrower acquired or created more than four months after the name change. This means that the lender no longer has a higher lien on receivables created and inventory and equipment purchased more than four months after the name change. The new lender (filed under the new name) would therefore have the first preponderant privilege over the assets acquired after the acquisition. The lender`s initial privilege would continue with respect to assets still held by the borrower and acquired prior to the name change and for four months thereafter, but the loss of priority of newly acquired assets is usually a major concern for a lender. If the borrowing unit is not a registered organization, such as a partnership in Wisconsin and most other states, use the name in the partnership agreement or similar organizational document. Getting a certified copy of the borrower`s document will give you convenience, and filing under the names of all general partners, as well as the partnership company, is best practice. Changing a borrower`s name can have unintended and quite serious consequences if a lender doesn`t recognize the need for action on their part. Borrowers are also well advised to ensure that their lenders are aware of any outstanding name changes and have taken the necessary steps to maintain their privilege perfection to avoid unnecessary default events and the resulting legal fees associated with finding a solution to an unforeseen problem.
That`s why we take care of name changes! You have just received your borrower`s quarterly financial statements. They are very good, but that`s not what catches your eye. The cover letter shows that the company has been rebranded, with a bold new logo and a name change to something more environmentally friendly and focused on sustainability. They call the director of the LLC, and he is happy with the success of their new marketing campaign, which is already bearing fruit in new business. Everything is fine, right? A borrower is any applicant (e.g. individually or collectively), whose credit is used for eligible purposes to determine whether it is able to meet Fannie Mae`s underwriting and licensing standards. “Co-borrower” is a term used to describe any borrower other than the borrower whose name appears first on the note. Fannie Mae requires every borrower to have a valid Social Security number or Individual Tax Identification Number (ITIN) (in addition to meeting existing legal residency and documentation requirements). For more information, see B2-2-02, Non-U.S. Eligibility conditions for citizen borrowers. Under the UCC issued in Wisconsin, a secured party has four (4) months to file a change of name of the debtor.
If you do not file your return within this period, the financing statement does not constitute a perfect privilege on assets acquired more than four months after the name change. WI Statistics 409.507 (3) (b). Another secured party could file a financing statement naming the debtor under the new name, which could then override your privileges over the new assets. Lenders should be aware of the importance of a borrower`s legal name and should pay attention to any indication from a borrower that a name change might have occurred or might be contemplated. If a lender discovers a name change, it is important to inquire immediately with the state records office and, if necessary, submit a modified UCC to maintain the lender`s first priority.
