INDUSTRY U P DAT E S
What’s in a Name? The Arkansas UCC Lien Filing System Has a Thorny Issue by Chad Cumming
H
ow many liens are filed on a specific person? Who are those lien holders? What property has liens? Those are standard questions that are
asked repeatedly in the banking industry, whether it’s from the perspective of a debtor or a lender. There is a government office that exists, in part, to hold those records and answer those questions. However, a wrinkle in how that government office operates means the questions may not be answered as clearly as we have thought. Most people are familiar with the process for placing a lien on property. To create a lien, a debtor must agree in writing to allow a lender to place a lien (liens are also known as “security interests”) on that debtor’s property. Records of liens are filed by lenders with the Arkansas Secretary of State’s office. That filing is known as a “UCC
28
•
WINTER 2020
Financing Statement” and more commonly known as a “UCC.” The purpose of the UCC financing statement is to serve as a public notice of the lien. This public notice helps lenders determine what property a borrower has that can be used as collateral. What makes this notice vital is the fact that more than one lender can file a lien on the same collateral. Therefore, the other purpose of the UCC financing statement is to create a record of which lien is first in line. This is called “priority.” The mechanism for filing a financing statement and conducting a lien search in Arkansas is administered by the Arkansas Secretary of State. A financing statement is filed in the state where a debtor is located, meaning a financing statement filed on property of an Arkansas corporation is filed with the Arkansas Secretary of State. The search can be conducted most efficiently using their online search engine.
