What a dirt lawyer needs to know about new Article 9 of the UCC

As a practical matter, a lender performing searches prior to making a new loan to determine whether existing security interests are effective against collateral should continue to search the records in which financing statements would have been filed under the provisions of Former Article 9, because a previously filed financing statement will remain in effect until the earlier of June 30, 2006 or when it would have otherwise expired. In any event, such a lender should continue to search local records where goods are located even after June 30, 2006 to protect itself against nonU.C.C. interests such as tax liens, judgment liens, and, in some states, Superfund liens.

III. How ARTICLE 9 APPLIES TO REAL ESTATE TRANSACTIONS

A. Fixtures

Almost every real estate financing transaction involves fixtures. Article 9 makes some important changes to the perfection of a security interest in fixtures. The definition of "fixtures" is largely unchanged from the definition contained in section 9-313 of Former Article 9.46 The terms "fixture filing" and "fixtures" are defined in section 9-102(a)(40) and (41) of Article 9, and they are not substantively different from the definitions in section 9-313 of Former Article 9.

Governing Law. For goods generally, the local law of the jurisdiction where the goods are located governs the perfection of a security interest in those goods by filing a fixture filing.47 Such local law also applies to the effect of perfection or nonperfection and to priority, regardless of how perfection occurs.48 As discussed below, perfecting a security interest in fixtures without filing a fixture filing would put the secured party at a disadvantage with respect to owners or encumbrancers (other than the debtor) of the real property into which the fixtures are incorporated.

interest in goods that are or are to become fixtures is recorded in the office where a mortgage or deed of trust on the applicable real property would be recorded.49 A prudent lender might file an additional financing statement in the centralized filing office of the state where the debtor is located in case the goods turn out not to be fixtures,50 though such a centralized filing is redundant if the goods are fixtures. Such a centralized filing will not have priority over owners or encumbrancers of the real property (other than the debtor). So, if only a single filing will be made, then recording in the records where a mortgage or deed of trust would be recorded on the applicable real property is preferable. A fixture filing can be in the form of a financing statement, with some additional language added, or embedded in a mortgage or deed of trust, with some additional language added.51 While some lenders may continue the "belt and suspenders" practice of recording two fixture filings, one on the financing statement form and one embedded in the mortgage or deed of trust, only one is needed. Embedding the fixture filing eliminates the need for continuation statements every five years.