UCC ISSUES IN REAL ESTATE First Run Broadcast: January 25, 2017 1:00 p.m. ET/12:00 p.m. CT/11:00 a.m. MT/10:00 a.m. PT (60 minutes) There are significant UCC issues at virtually every stage of a real estate transaction. From filing mortgage documentation to ensure priority and enforceability; the treatment of furniture, fixtures, and equipment to the treatment of equity pledges in real estate development as investment contracts, the UCC looms large. Failure to appreciate and plan for compliance with its many articles jeopardizes the underlying transaction. This program will provide you will provide you with a practical framework of UCC issues in real estate transactions. UCC issues in real estate transactions Mortgage documentation Furniture, fixture and equipment issues Deposit and securities accounts Treatment of equity pledges as investment contracts Security interests in LLCs used in real estate deals Letter of credit issues Speakers: Steven O. Weise is a partner in the Los Angeles office Proskauer Rose, LLP, where his practice encompasses all areas of commercial law. He has extensive experience in financings, particularly those secured by personal property. He also handles matters involving real property antideficiency laws, workouts, guarantees, sales of goods, letters of credit, commercial paper and checks, and investment securities. Mr. Weise formerly served as chair of the ABA Business Law Section. He has also served as a member of the Permanent Editorial Board of the UCC and as an Advisor to the UCC Code Article 9 Drafting Committee. Mr. Weise received his B.A. from Yale University and his J.D. from the University of California, Berkeley, Boalt Hall School of Law.
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UCC Issues in Real Estate Transactions Steven O. Weise Proskauer Rose, LLP Los Angeles (o) (310) 284-4515 sweise@proskauer.com
The basics Perfection by filing Perfection by possession Real estate issues Diligence Issues
Fixtures Deposit accounts Letters of credit Equity pledges Loan and portfolio sales The underlying mortgage Cooperative interests
Acknowledgement from bailee Debtor cannot possess (as agent or bailee) for secured party Possession sometimes affects priority
Generally one filing per debtor Other than certain real-estate-related filings Based on location of debtor Does not matter how many states are touched
Perfection by filing: state of location Registered organizations: formation General partnerships and other organizations (nonregistered): chief executive office Individuals: principal residence Trusts: apply location rules to owner of trust property under other state law
Debtor name must be correct Special rules for trusts Secured party s name No debtor signature In New York, cooperative shares require special addendum
All assets ok for financing statement All assets not OK for security agreement or mortgage Avoid subjective descriptions that can change E.g., all equipment used in connection with mortgaged property Equipment could move
1. DEBTOR S EXACT FULL LEGAL NAME - insert only one debtor name... 1b. INDIVIDUAL S LAST NAME Kinderknecht FIRST NAME Terry [should be: Terrance]
1. DEBTOR S EXACT FULL LEGAL NAME - insert only one debtor name... 1b. INDIVIDUAL S LAST NAME House FIRST NAME Roger [should be: Rodger]
1. DEBTOR S EXACT FULL LEGAL NAME - insert only one debtor name... 1a. ORGANIZATION S NAME Keystone Steel & Wire Co. [should be: Keystone Consolidated Industries, Inc.]
In re: Spearing Tool and Manufacturing Co., Inc., 412 F.3d 653 (6th Cir. 2005) Test for IRS lien is whether reasonable and diligent search would have revealed the existence of the notices of the federal tax liens under these names.
Definition fixtures Fixture filing in state of location of fixtures Fixture filing gives priority against real estate interests Perfect locally (location of fixtures) or centrally (at location of debtor)
Perfection only by control Agreement with depositary bank Effect of agreement to delay giving instructions until default Super-priority of depositary bank Rights of transferee of funds out of deposit account
3 methods: Control agreement Secured party is entitlement holder Secured party is intermediary
OK if debtor can still access account Comments to 8-106(d)(2) revised to indicate that waiting for debtor default does not vitiate control
Sales of payment intangibles Sales of promissory notes
Sales of payment rights: perfection Payment intangibles (loan agreements) Automatic Promissory notes Automatic
The underlying security interest Supporting obligations Underlying collateral Automatic: Attachment Perfection Risk of borrower fraud in reconveyance
Amend existing financing statement? File new financing statement?
Effect of UCC 9-406 on security interests in promissory notes and payment intangibles Effect of UCC 9-408 on sales of promissory notes and payment intangibles
Letter-of-credit rights Perfection by control only Acknowledgement from issuer No right to draw
LLC and partnership interests Certification enough? Opt in
Particularly useful for foreign pledgors May allow buyer/secured party to take free of adverse claims Financing statement is not notice of an adverse claim, See UCC 8-105(e) (except in NY for coop interests)
LLC (account debtor) Membership interest Membership interest Debtor Secured party Account debtor Account debtor Member (account debtor) Anti-assign Agreement Member (debtor) Security interest Secured party
Pre-closing jurisdictions Post-closing changes in governing law Change in debtor s location Change in debtor Change in debtor s name