Recent blogs have addressed the role of UCC financing statements in regard to secured transactions. Once filed, these UCC forms allow a creditor to establish a relative priority with other creditors of the debtor. The effectiveness and authority of these notices and statements are not infinite. At some point in time, the filing party must review the interest and take further action, otherwise, the initially-filed financing statement will lapse and no longer be effective.
In most cases, a filed financing statement is effective for a period of five years after the date of filing. If the financing statement indicates that it is filed in connection with a public finance transaction or manufactured home transaction, the initial financing statement is effective for a period of 30 years after the date of filing.
The “further” action related to a UCC-1 financing statement must be taken before the expiration of its effective period, otherwise, it will lapse and become ineffective. Before the date of expiration of the UCC-1, continuation statement in the form of a UCC-3 must be filed pursuant to California state law requirements.
Upon lapse, a financing statement ceases to be effective and any security interest therein becomes unperfected, unless the security interest is alternatively perfected in some other way such as possession or control of the collateral. If the security interest becomes unperfected upon lapse, it is deemed never to have been perfected as against a purchaser of the collateral for value.
A continuation statement may not be filed too early in time and may only be filed within six months before the expiration of the five-year period or the 30-year period in the case of a public finance transaction or manufactured home transaction.
Upon the timely filing of a continuation statement, the effectiveness of the initial financing statement continues for a period of five years commencing on the day on which the financing statement would have become ineffective in the absence of the filing. Upon the expiration of the five-year period, the financing statement lapses unless, before the lapse, another continuation statement is filed. Successive continuation statements may be filed in the same manner to continue the effectiveness of the initial UCC-1 financing statement.
There are some other considerations related to a specific secured party or debtor regarding the duration of filed financing statements. If a debtor is a transmitting utility and this fact is indicated on an initially filed financing statement, the financing statement is effective until a termination statement is filed. In some cases, a record of a mortgage that is effective as a financing statement filed as a fixture filing remains effective as a financing statement filed as a fixture filing until the mortgage is released or satisfied of record or its effectiveness otherwise terminates as to the real property.
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