Iowa Legislature Updates UCC Article 9
Posted on 07/01/2012 at 08:00 AM by The Newsroom
To bring Iowa's Uniform Commercial Code up to date with the National Conference of Commissioners on Uniform State Laws (NCCUSL) changes, the Iowa legislature adopted and Governor Branstad signed legislation amending Article 9 of Iowa's Uniform Commercial Code. H. File 2321, 84th Gen. Assemb., Reg. Sess. (Iowa 2012). Article 9 is found in the Iowa Code at Chapter 554. IOWA CODE §§ 554.9101554.9710 (2011). The changes generally become effective July 1, 2013. While many of the changes were aimed at keeping pace with technological changes that allow for more electronic filing and recordkeeping applications, the changes adopted by the legislature did include some that are substantive in nature. The key changes of which to take note follow.
I. IOWA CODE SECTION 554.9316(8): EFFECT ON FILED FINANCING STATEMENT OF CHANGE IN GOVERNING LAW
Section 554.9316 was amended to add language relating to the effect on a filed financing statement of a change in governing law where a debtors location changes to another jurisdiction within four months of a security interest attaching to collateral. The new language effectively treats collateral acquired by the debtor after the change in location the same as collateral acquired before the relocation. One implication of this new subsection is that prospective creditors of a debtor who has recently moved will need to search in the previous jurisdiction for filings with respect to collateral acquired after the move (not just before the move). Under the new provision, if a filed financing statement would have been effective to perfect a security interest in the collateral had the debtor not changed location, that financing statement is effective to perfect a security interest in collateral acquired within four months after the change in location. Additionally, as concerns continued perfection, if a security interest perfected by a financing statement that is effective under the new provision becomes perfected under the law of the debtors original jurisdiction before the earlier of the time the financing statement would have become ineffective under the law of the debtors original jurisdiction or the expiration of a four-month period, it remains continuously perfected. If, however, the security interest does not become perfected under the law of the debtors original jurisdiction before the earlier time or event, it becomes retroactively unperfected (and therefore is deemed never to have been perfected as against a purchaser of the collateral for value). With the addition of this new subsection, it is vital for creditors to inquire about any changes in the debtors location so they can search the filing systems in all possible jurisdictions to locate the debtors collateral. It is also important for secured parties to keep abreast of changes in the debtors location so any necessary steps can be taken to ensure continued perfection.
II. IOWA CODE SECTION 554.9316(9): EFFECT OF CHANGE IN GOVERNING LAW ON FINANCING STATEMENT FILED AGAINST ORIGINAL DEBTOR
Section 554.9316 was amended to add language (i) relating to security interests that attach within four months after a new debtor becomes bound as debtor by a security agreement entered into by another person and (ii) relating to collateral acquired by the new debtor after the debtor becomes bound by a security agreement. This new provision is triggered if a financing statement naming an original debtor is filed pursuant to the law of the original debtors jurisdiction and a new debtor who is located in another jurisdiction becomes bound by the security agreement. Under this new provision, the financing statement filed against the original debtor is effective to perfect a security interest in collateral acquired by the new debtor before and within four months after the new debtor becomes bound by the security agreement if the financing statement would have been effective to perfect a security interest in the collateral had the original debtor acquired the collateral. If the financing statement satisfies these conditions, a secured party does not need to take any additional steps to remain perfected. The second part of the new provision deals with situations where additional perfection steps need to be taken to ensure continued perfection. This paragraph says a security interest perfected by the financing statement, and which becomes perfected under the law of the original debtors jurisdiction before the earlier of the time the financing statement would have become ineffective under the law of the original debtors jurisdiction or the expiration of a four-month period, remains continuously perfected. If, however, the security interest does not become perfected under the law of the original debtors jurisdiction before the earlier time or event, it becomes retroactively unperfected (and therefore is deemed never to have been perfected as against a purchaser of the collateral for value). If this provision is applicable, a secured party must be aware of any new debtors who become bound by the security agreement so the secured party can take any additional perfection steps within four months to make sure perfection is never lost, which would result in problems for a creditor seeking to enforce a security interest.
III. IOWA CODE SECTION 554.9326: PRIORITY OF SECURITY INTERESTS CREATED BY NEW DEBTOR
Section 554.9326 was amended in relation to the priority of security interests when a new debtor becomes bound by the security agreement of an original debtor and each debtor has a secured creditor. The provisions cover situations in which the new debtors security interest is protected solely by a financing statement and establishes priorities under other provisions where there are multiple original debtors. Subsection 1 originally stated a security interest perfected by a filed financing statement that is effective solely under section 554.9508 (which is the provision that provides that filed financing statements naming an original debtor are effective to perfect a security interest in collateral in which a new debtor has or acquires rights to the extent the financing statement would have been effective had the original debtor acquired the rights in the collateral) was subordinate to a security interest in the same collateral which is perfected by any other means. The amendment now expands the scope of subsection 1 to include security interests perfected by a filed financing statement that would be ineffective to perfect the security interest but for the application of section 554.9508 or new section 554.9316(9)(a) (discussed above). The amended subsection 1 now makes security interests perfected by either of these two methods subordinate to a security interest in the same collateral which is perfected by any other means. Subsection 2which covers priority under other provisions with multiple original debtorswas amended to expand the scope of application of the subsection to include all collateral perfected by filed financing statements as described in subsection 1 (subsection 2 previously only covered collateral perfected by filed financing statements effective solely under section 554.9508).
IV. IOWA CODE SECTION 554.9507: EFFECT OF CERTAIN EVENTS ON EFFECTIVENESS OF FINANCING STATEMENT
Section 554.9507 contains amendments aimed at clarifying the effect on a financing statement of a change in a debtors name. The amendment now applies whenever the name of the debtor changes. The section is triggered whenever a filed financing statement provides a name that, at the time of filing, satisfies the requirements of section 554.9503(1) with respect to the named debtor but, at a later time, no longer does so. Since 554.9503(1)(d) (as amended) states that if the debtor is an individual to whom Iowa has issued a drivers license (that has not expired) the financing statement must provide the name of the individual as indicated on the drivers license, this amendment makes clear that a change in a name on a drivers license would qualify as a name change. Creditors should be aware of marriages, divorces, or any other events that may cause a debtor to change their name. If this section is triggered, the next question is when the debtor acquired the subject collateral in relation to the name change that rendered the filed financing statement ineffective. If the debtor acquired the collateral before or within four months, paragraph a says the filed financing statement is effective to perfect a security interest in that collateral. If paragraph a applies, the secured party does not need to take any additional perfection steps. If the debtor acquired the collateral more than four months after the name change, paragraph b says the financing statement is not effective to perfect a security interest in that collateral unless an amendment to the financing statement which renders the original financing statement not seriously misleading is filed within four months of the name change. Even if paragraph b applies to some collateral, it does not retroactively unperfect any other collateral acquired before or within four months of the financing statement becoming seriously misleading. Secured parties should still file an amended financing statement so all collateral is perfected, but the consequences of failing to do so are less harsh than the retroactive unperfection consequences of some other provisions.
V. IOWA CODE SECTION 554.9518: CLAIM CONCERNING INACCURATE OR WRONGFULLY FILED RECORD
Section 554.9518 involving claims concerning inaccurate or wrongfully filed records was substantially amended and spells out how to file corrective information statements and what must be included. It is important to remember that information statements have no legal effect. The purpose of information statements is simply to provide notice that there is some dispute over the public record. While secured parties of record in Iowa now have the option of filing an information statement, it is not required, as the burden of determining whether filings were authorized and/or accurate lies with the searcher. Since information statements have no legal effect, if a secured party discovers an error in its own financing statement, this section does not provide a way to fix the error. The provisions of subsections 1 and 2 are triggered if a debtor believes a record indexed under his or her name is inaccurate or was wrongfully filed. The provisions of subsections 3 and 4 are triggered if a secured party of record believes the person that filed the record was not entitled to do so. The previous subsection 3 was renumbered as subsection 5 as part of the amendments and simply states an initial financing statement or other filed record is still effective, even if a related information statement is filed. Subsection 1 was amended to change the name of these claims from a correction statement to an information statement. Subsection 2 discusses what should be included in an information statement, listing three items. First, the statement must identify the record to which it relates by the file number assigned to the initial financing statement to which the record relates. Second, something in the statement must identify it as an information statement. Third, that statement must provide a basis for why the debtor thinks the public record should be corrected and how the record should be amended to cure any inaccuracies. Subsection 3 is an entirely new section and allows a secured party of record to file an information statement if they are listed as a secured party of record and do not believe that the person who filed the record was entitled to do so under section 554.9509(4) (the provision that says a person may file an amendmentother than an amendment adding collateral or a debtoronly if the secured party of record authorized the filing or the amendment is a termination statement the secured party has failed to file, authorized by the debtor). Subsection 4 is also new, and lists the contents required for an information statement filed pursuant to subsection 3. First, the statement must identify the record to which it relates by including the file number assigned to the initial financing statement. Second, it must indicate that it is an information statement. Third, it must provide the basis for the secured partys belief that the person who filed the record was not entitled to do so. Subsection 5 is the prior subsection 3 and has been amended to note the change in the name of these claims from correction statements to information statements. These provisions resemble the analogous remedy in the Fair Credit Reporting Act (15 U.S.C. § 1681i) and afford an aggrieved person the opportunity to state their position on the public record. However, the provisions do not permit an aggrieved person to change the legal effect of the public record. While a filed information statement becomes part of the financing statement, subsection 5 prevents it from having any legal effect on any filed record.
VI. IOWA CODE SECTION 554.9805: EFFECTIVENESS OF ACTION TAKEN BEFORE EFFECTIVE DATE
New section 554.9805 should be read carefully as it deals with effectiveness for pre-effective date filings and continuation statements. Subsection 1 says the filing of a financing statement before July 1, 2013, is effective to perfect a security interest as long as the filing would satisfy the amended perfection requirements. Subsection 2 governs when filing statements filed before July 1, 2013, become ineffective. The amendments do not render ineffective any financing statements filed before July 1, 2013, that satisfy the pre-amendment perfection requirements. If filed in Iowa, the financing statement is rendered ineffective whenever it would have ceased to be effective had these amendments not been implemented. If filed outside of Iowa, the financing statement is rendered ineffective at the earlier of the time it would have ceased to be effective under the law of the jurisdiction where it was filed or June 30, 2018 (five years after the effective date of the amendments). Subsection 3 covers continuation statements filed on or after July 1, 2013. If a continuation statement is filed on or after July 1, 2013, the effectiveness of a financing statement filed before July 1, 2013, does not continue unless the continuation statement is filed in accordance with the law of the jurisdiction governing perfection (as amended). This means secured parties looking to file a continuation statement must be aware of any amendments they will now need to make to the financing statement to ensure it complies with the Act. Subsections 2 and 3 are particularly important in relation to the amendments to section 554.9503(1)(d) (concerning the name of the debtor that must be provided for an effective financing statement). Prior to the amendments, an individual debtors name on a financing statement that doesnt match the debtors name on their drivers license could still be sufficient (for example, listing John Doe on the financing statement when the debtors drivers license says Jonathan Doe). Once the amendments take effect, the financing statement is not rendered ineffective if the financing statement is seriously misleading until it would have ceased to be effective had the Act not passed. However, if the financing statement is seriously misleading and the secured party wants to file a continuation statement, the secured party must amend the financing statement to reflect the debtors name that is sufficient under the amended section 554.9503(1)(d) (most likely the name on the debtors drivers license). Subsection 4 discusses the application of section 554.9805(2)(b) to financing statements filed before July 1, 2013 against a transmitting utility. Subsection 5 states that a financing statement that includes an original financing statement filed before July 1, 2013, and a continuation statement filed on or after July 1, 2013, is effective only if the financing statement satisfies the initial financing statement requirements of amended Part 5.
VII. EFFECTIVE DATE
The Act further details the impact of failing to take actions necessary to comply with the Codes provisions prior to the July 1, 2013 effective date.
VIII. OTHER RELEVANT PROVISIONS AND SUMMARY POINTS TO KEEP IN MIND
Section 554.9102(1) was amended to reflect that certain records may be in new forms due to technological advances. The definition of certificate of title found at 554.9102(1) was amended to include other types of records maintained by governmental units that issue such certificates if the statute permits the security interest in question to be indicated on the record as a condition or result of the security interests obtaining a priority over another lien creditor with respect to the affected collateral. A registered organization by definition under 554.9102(1) now includes organizations formed by the filing of a public organic record with, issuance of a public organic record, or enactment of legislation by the state or the United States. The term also includes a business trust if a statute of the state governing the trust requires that its organic record be filed with the state. Section 554.9102(1) adds a new paragraph defining a public organic record. Section 554.9105 was amended to address technological advancements in how electronic chattel paper is controlled and to specify what facts will satisfy the test for establishing such control. Section 554.9406(5) was amended to clarify when section 554.9406(4) does not apply in the case of certain sales. Similar amendments were made to section 554.9408 to carve out exceptions to the applicability of section 554.9408(1)s application. Section 554.9502 was amended to simplify the requirements for certain records to be sufficient for filing purposes as a financing statement. Section 554.9503 was amended to address collateral held by trusts that are registered organizations (again, conforming amendments). The Act further provides at section 554.9804 that an unperfected security interest will become perfected if it meets the requirements on July 1, 2013, without any further action. The Act makes clear that financing statements may be filed now under the new rules and will be effective. New sections 554.9806 and 554.9807 deal with when initial financing statements suffice to continue effectiveness and with amendments to pre-effective date financing statements. New section 554.9808 addresses when a person may file an initial financing statement or continuation statement. New section 554.9809 states that priorities established before July 1, 2013, will continue to remain in order of priority under the Uniform Commercial Code as in effect prior to the July 1, 2013 amendments effective date. Sections 554.9701554.9710 were repealed, and, effective July 1, 2019, sections 554.9801554.9809 are repealed.
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