The “Perfect” Name In a UCC-1

207321 CBB Newsletter Q3 2022 v2 CMYK

The Florida Supreme Court recently issued a decision that impacts lenders using UCC-1 financing statements to secure their interests in collateralized personal property. The financing statements serve a similar purpose as recording a mortgage for real property. The decision, 1944 Beach Boulevard, LLC v. Live Oak Banking Company, SC21-1717, 47 Fla. L. Weekly S193a, holds that under Florida law, there is zero tolerance for errors in the debtor’s name on a UCC-1 financing statement.

1944 Beach Boulevard owed $3,000,000 to Live Oak Banking, secured by a blanket lien on all of 1944 Beach’s assets. To perfect its lien, Live Oak filed UCC-1 financing statements with the Florida Secured Transaction Registry, the official filing and retrieval system authorized by Florida Statutes. The financing statements identified the debtor as “1944 Beach Blvd.” instead of “1944 Beach Boulevard.” When 1944 Beach subsequently filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code, a search of the secured transaction registry was conducted using the abbreviated “Blvd.”, which did not appear on the initial page of the most closely matching names. Although Live Oak’s financing statements appeared on the page immediately preceding the search results, the Court held that its security interests were not perfected. As a result, Live Oak lost its priority and became an unsecured creditor in the bankruptcy proceedings.

The Court explained that while Florida has a statutory safe harbor exception for mistakes naming a debtor on a financing statement, the exception explicitly requires that “a search of the record of the filing office under the debtor’s correct name using the filing office’s standard search logic if any” would disclose the financing statement. Unfortunately for Live Oak Banking, Florida’s registry does not use a “standard search logic” system, as the industry understands that term. Instead of returning a finite list of hits when a search is conducted, Florida’s registry returns an initial list of twenty names from which a user can search forward or backward through all indexed financing statements.

As a consequence of Florida’s Supreme Court ruling that there is no “standard search logic” in the State’s official secured transaction registry, we recommend that lenders check their protocols and procedures to ensure their debtors’ names are correctly stated on their UCC-1 financing statements. The failure to do so could result in serious legal ramifications if not properly followed. Please contact us if you have further questions or require our firm’s assistance.

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