What is a UCC 1 Agreement?

A Uniform Commercial Code (UCC) 1 agreement is a formal written filing declaring a creditor's interest in a debtor's property used as collateral for a loan. The term “agreement” in this sense is a bit misleading, as the form is not a legal agreement and the debtor is not involved in the filing and processing of the paperwork. Some people prefer the terms “financing statement” or “UCC 1 notice” because they are more accurate descriptions of a UCC 1 agreement.

The Uniform Commercial Code is a set of standardized laws pertaining to the process of doing business in the United States. Individual states have chosen to adopt the UCC whole or to adapt portions of it, making documents like a UCC 1 agreement fairly standard across the states. The “1” in the name is a reference to the section of the UCC where the relevant legal information is located.

Debtors typically file a UCC 1 agreement with the secretary of state for the state where they are doing business. It serves to “perfect” the security agreement associated with the loan by creating a public notice advising people of the fact that the creditor has a security interest in the asset. This creates a lien, making it impossible for the debtor to transfer the asset without explicit consent from the creditor, and creates a secured loan. If the debtor defaults, the creditor can seize the property and sell it to recover the debt.

The UCC 1 agreement needs to provide information about the debtor, the property, and the debt. Any type of property may be named in the statement, as long as it is clearly defined. When the debt is paid off, the lien is lifted. The person owns the property free and clear and can dispose of it as desired, without receiving permission from the creditor. If a person goes bankrupt, creditors with secured debt are first in line when the assets are liquidated and are most likely to be at least partially repaid.

When people enter debt relationships and their creditors file a UCC 1 agreement, they should make sure the lien is removed after the debt is resolved. The title to the property should be clear, showing no impediments to transfer. Sometimes creditors process paperwork slowly or lose paperwork, retaining a lien by accident, and in other cases there may be errors with the processing on the other end. It is advisable to request a fresh copy of the title to the property to confirm that no lien exists.