UCC Financing Statements Must Contain the Debtor’s Correct Name

“[A] financing statement is sufficient only if it [among other things] . . . provides the name of the debtor. “ N.C. Gen. Stat. § 25-9-502(a)(1) (emphasis added). Prior to July 1, 2013, North Carolina law provided “[a] financing statement sufficiently provides the name of the debtor ...only if it provides the individual...name of the debtor.” N.C. Gen. Stat. § 25-9-503(a)(4)a. Effective July 1, 2013, North Carolina adopted amendments to Article 9 of the UCC. In doing so, N.C. Gen. Stat. § 25-9-503 was amended to provide that if the debtor is an individual to whom this State has issued a driver’s license or special identification card, a financing statement sufficiently provides the name of the debtor “only if the financing statement provides the name of the individual which is indicated on the driver’s license or special identification card.” N.C. Gen. Stat. 25-9-503(a)(4) (emphasis added). This amendment places a burden on creditors to ensure all filings contain the exact name of the debtor, as it appears on the debtor’s North Carolina driver’s license (if one has been issued and is not expired).

For example, if a driver’s license was issued to a debtor whose name was listed as “Mary Beth Kronik”, but “Mary Kronik” is what appears on the Financing Statement, then the Financing Statement does not “provide the individual...name of the debtor” as required by N.C. Gen. Stat. § 25-9-503(a)(4). The creditor’s lien has not been perfected by the UCC filing, and is subject to being primed by a correct filing by another creditor, or by a bankruptcy trustee if the debtor should file a bankruptcy petition while the ineffective Financing Statement is in place.

Creditors Have an Opportunity to Cure Financing Statements Under the Transition Rules

When the legislature amended N.C. Gen. Stat. § 25-9-503, it also enacted transition rules governing a creditor’s right to amend or cure any financing statement that was proper under prior law, but would be rendered ineffective by the statutory amendment. Under the transition rules, a financing statement that was effective under the prior statute continues to be effective until the creditor’s time for filing a continuation statement expires. If a continuation statement is filed, it must provide the correct name of the debtor as required by the newly amended statute or the financing statement, as amended, is not effective. A search of the debtor’s correct name, as shown on the debtor’s driver’s license, using the standard search logic employed by the North Carolina Secretary of State must reveal the financing statement. If such a search does not reveal the financing statement, then the statement may be considered “seriously misleading” and ineffective under North Carolina law.

Importance of Obtaining a Copy of the Debtor’s Current Driver’s License

How a debtor’s name appears on his or her driver’s license is more important now than under prior law. In years past, creditors may or may not have obtained a copy of a debtor’s driver’s license for the credit file when the original UCC financing statement was prepared and filed.  However, it is imperative to obtain and retain a copy under current law for verification of the debtor’s proper name. 

A creditor’s due diligence should not stop after the initial financing statement filing. A debtor may change how his or her name appears on their driver’s license for numerous reasons, including a change in marital status, a gender identity name change, or the intentional or unintentional insertion or deletion of a middle name or initial. To be effective a financing statement must reflect the debtor’s exact name as it appears on the debtor’s current driver’s license. Therefore, creditors should obtain a copy of their driver’s license not only upon the initial filing of a financing statement, but also when a continuation statement is filed to ensure the debtor has not altered how his or her name appears on their driver’s license. 

What’s a Creditor to Do?

An ounce of prevention makes all the difference in this case between a perfected lien and a worthless recorded financing statement. Creditors need to review their procedures for name verification in conjunction with financing statement filings. If proper procedures have not been in place and implemented since the change in North Carolina law on July 1, 2013, then an audit of existing financing statement filings is essential to identify and cure any defective filings. If the filing was effective under prior law and the time for continuation has not lapsed, a new, timely and correct continuance can maintain the effectiveness of the existing filing with the same lien priority the original filing held. If the filing was ineffective under prior law, or if it became ineffective because it was not timely amended to comply with current law, then a correct filing still may be made, but the resulting lien will be junior to previously filed effective financing statements on the same debtor covering the same collateral.