3JM Company Inc.

Published Articles by David Balovich

Published in: Creditworthy News
Date: 8/19/98

In the last column we reviewed the difference between a security agreement and the UCC-1 financing statement.

In this column we will discuss when it is necessary to record the financing statement and the reason that the financing statement should always be recorded.

The recording of the financing statement is required when the security involves inventory, equipment, accounts, general intangibles and farm products.

The recording does not have to be immediate. In the majority of states the financing statement may be recorded any time within five years of the date of the security agreement.

When the security is consumer goods recording of the financing statement is not required. For instance you purchase furniture from Levitz and finance it. Levitz has a security interest in the furniture however they are not required to record the financing statement.

Several states require that the financing statement be recorded in multiple locations in order to be perfected.

For instance Arkansas requires that if the debtor only has one location that the financing statement be recorded with the Secretary of States office in Little Rock and also with the County Recorder's office in the county where the debtor has his place of business.

Several states require that filings be recorded in different locations depending on the type of collateral. For instance consumer goods and farm products are generally required to be filed in the county where they are located whereas equipment and inventory is usually recorded at the Secretary of States office. You should always contact the Secretary of State to determine where your filing is to be recorded.

It is recommended that financing statements always be recorded regardless of whether they are required to be or not. Recording makes the document a public record and informs other creditors that you have specific collateral as security for your debt.

In addition to security agreements; leases, rental agreements and consignments should also be recorded as public notice to other creditors. By doing so you are protected from other creditors removing property held by you as collateral for satisfaction of their debt. This includes the IRS and state taxing authority. Should another creditor remove property that you are first filed in without your permission you may have recourse against the creditor for the value of the property obtained.

For a free listing of Secretary of States addresses and phone numbers send your E-mail to Davea     with the reference SOS.

In the next column we will discuss the difference between a security agreement and a purchase money security agreement.

I wish you well.

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