Akin, Gump, Strauss, Hauer & Feld, L.L.P.
As appeared in the Summer 2000 issue of
The Real Estate Finance Journal
Revised UCC Article 9: Its Broad andVaried Impact on Real Estate Finance
by Gary A. GoodmanAkin, Gump, Strauss, Hauer & Feld, L.L.P.
Lenders and borrowers should both benefit when the new law takes effect.
Revised Article 9 of the Uniform Commercial Code (UCC), scheduled to take effect on July 1,2001, in numerous states across the country, will affect real estate financings in a variety of ways. Among other things, the new law (1) helps facilitate securitizations, (2) makes it easier toperfect liens in syndicated credit transactions, and (3) changes how real estate-related collateralmust be described on financing statements—and where those financing statements must be filed.In addition, revised Article 9 significantly alters the rules applicable to mortgage loanparticipations, offers more protection to secured lenders holding liens on proceeds of collateralwhen the proceeds arise after a borrower’s bankruptcy, and contains a form of a “notice of sale”that is a safe harbor on which foreclosing creditors may rely.
Revised Article 9’s increased interest to real estate finance professionals begins at the beginning:The revision covers more transactions than does current Article 9. That means, for example, thatthere will be fewer instances where creditors will be forced to rely on liens under the commonlaw, and this will make for more certainty.The new scope of revised Article 9 is reflected in various definitions. For example,although current Article 9 precludes deposit accounts from being considered as collateral,revised Article 9 permits it (except in consumer transactions). In addition, “general intangibles”now includes “software” as well as “payment intangibles.” A payment intangible is defined as“a general intangible under which the account debtor’s principal obligation is a monetaryobligation.” Indeed, Article 9 will cover the outright sale of “payment intangibles,” which willfacilitate securitizations. Lenders should note that under revised Article 9, a security interestcreated on the outright sale of a payment intangible is automatically perfected if it does not, byitself or in conjunction with other assignments to the same assignee transfer a significant part of the assignor’s outstanding accounts or payment intangibles (which undoubtedly will allowinstitutions to take advantage of the automatic perfection rule); as a result, there will be no needfor a purchaser of a loan participation to file a financing statement against the financialinstitution that sells it.Under revised Article 9, “instruments” includes promissory notes. The revised law alsoincludes the outright sale of promissory notes within its scope. That is a useful addition, giventhat lenders often engage in those kinds of transactions.Another change in the scope of Article 9 permits a security interest to attach to assets asdiverse as rights under a letter of credit, contracts, licenses, and franchises despite a contractuallimit—or a statutory limit—on such an assignment. Revised Article 9 also permits financingstatements to describe collateral using a “supergeneric” description, such as “all assets of the