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UCC Seriously Misleading - Is an Abbreviation of a Borrower’s Name Fatal to Perfecting a Security Interest?

Is an Abbreviation of a Borrower’s Name Fatal to Perfecting a Security Interest?

A late September decision by the United States Eleventh Circuit Court of Appeals has clarified some practice points about how to properly perfect a creditor’s security interest.

To secure additional protection and priority among creditors, including in a bankruptcy case, creditors are required to follow state law to “perfect” their security interest. This typically takes the form of completing and recording a Uniform Commercial Code (“UCC”) financing statement describing the collateral that is security for the debt.

In the case of 1944 Beach Boulevard, LLC v. Live Oak Banking Co., creditor Live Oak Banking had attempted to perfect its liens against 1944 Beach Boulevard by recording a UCC statement in the Florida lien registry. However, Live Oak Banking’s UCC statement erroneously referred to its debtor as “1944 Beach Blvd., LLC” instead of its fully spelled legal name “1944 Beach Boulevard, LLC.”

1944 Beach Boulevard argued that this form of abbreviation was “seriously misleading” under Florida statutes, which would invalidate Live Oak Banking’s attempt to perfect its lien. Creditor Live Oak Banking, by contrast, argued that using “Blvd.” instead of “Boulevard” was in accordance with the standard search query logic and search terms found on the Florida lien registry. Accordingly, the creditor argued, any reasonable search query would have revealed the lien, meaning the filing would not be considered “seriously misleading.” In this way, Live Oak Banking argued its abbreviation qualified for the applicable safe harbor exception under Florida law.

The Florida Supreme Court wrestled with this issue on certified questions issued from the Eleventh Circuit and held that the Florida lien registry does not, in fact, have any uniform search query logic or standard abbreviation terms. Consequently, the court held that even a slightly altered or abbreviated debtor name is seriously misleading under Florida law, rendering the attempt to perfect the lien insufficient and invalid.

The Eleventh Circuit Court recently issued its final analysis of that Florida Supreme Court opinion, ratifying the opinion. The Circuit Court agreed that, since the Florida lien registry does not have a set of standardized abbreviations or other search terms, any deviations in debtor name description would be governed by a zero-tolerance rule.

This decision is a major cautionary tale to secured creditors and a reminder to bankruptcy practitioners to analyze all purported liens. Even a mere abbreviation of the name of a party may, in some states, invalidate an attempt to perfect a lien, thereby costing the creditor vital priority and protection for its claims.

You can read the full version of the 11th Circuit Court’s decision at:

https://law.justia.com/cases/federal/appellate-courts/ca11/21-11742/21-11742-2022-09-29.html

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