Under the Uniform Commercial Code (the UCC) in effect before July 1, 2001 (the Old UCC), financing statements filed in Maryland were effective for 12 years. Secured parties that filed financing statements in Maryland under the Old UCC would not have needed to continue those filings for 12 years. For example, a secured party that filed a financing statement in Maryland on June 30, 1998, and properly scheduled the financing statement for continuation, would have scheduled the financing statement to be continued during the six months before June 30, 2010. The secured party would not have expected the financing statement to become ineffective until June 30, 2010.
However, under the UCC in effect since July 1, 2001 (the Current UCC) the situation has drastically changed. As part of the transition from the Old UCC to the Current UCC (which has a five-year filing period for most financing statements), a financing statement filed in Maryland before July 1, 2001 under the Old UCC that is still effective but has not been continued under the Current UCC ceases to be effective at the earlier of (i) the date the financing statement would have ceased to be effective under the Old UCC or (ii) June 30, 2006 – even if June 30, 2006 is before the end of the 12-year period under the Old UCC – unless the financing statement is properly continued within the six months before June 30, 2006.
As a result, if a security interest is perfected by a financing statement filed in Maryland before July 1, 2001, which financing statement would not have ceased to be effective under the Old UCC until after June 30, 2006, such financing statement will cease to be effective, and such security interest will no longer be perfected by such financing statement, on June 30, 2006 under the Current UCC unless:
(i) if Maryland is the appropriate jurisdiction for perfection by filing under the Current UCC, a proper continuation statement is filed in Maryland within six months before June 30, 2006; or
(ii) if Maryland is not the appropriate jurisdiction for perfection by filing under the Current UCC, a proper "in lieu" financing statement is filed before June 30, 2006 in the appropriate jurisdiction.
In addition, if the priority of the security interest is dependent on the effectiveness of the filed financing statement, the secured party will lose the priority afforded by the financing statement if and when the financing statement becomes ineffective.
Who Is Affected by This Change
If you are a party (for example, secured party or debtor, lessor or lessee, buyer or seller, consignor or consignee) on one or more financing statements filed in Maryland before July 1, 2001 that have not been continued under the Current UCC and would have ceased to be effective under the Old UCC after June 30, 2006, it may be helpful for you to consider whether continuation statements, other financing statement amendments or additional financing statements should be filed before June 30, 2006, in Maryland or elsewhere.
Companies that are organized under Maryland law (such as Maryland corporations, limited partnerships, limited liability companies, or REITs) or have assets or offices located in Maryland, and parties that have made secured loans to such companies, or hold or service secured loans made to such companies, or lease equipment to such companies or hold accounts purchased from such companies are among those that may be affected by this change.
Change Affects Thousands – June 29, 2006 Filing Deadline Approaching
The Maryland State Department of Assessments and Taxation (the SDAT) has noted that there are more than 200,000 UCC financing statements filed in Maryland that will become ineffective by operation of law at the end of June, 2006 unless properly continued before then. The SDAT has recommended that such continuations should be filed as soon as possible and has noted that fewer than 1,000 continuations were filed in January. Given the approaching June 29, 2006 filing deadline, these numbers suggest that many parties may not yet be focused on continuing their existing filings.
Emergency legislation is pending in Maryland to amend the Current UCC provisions regarding continuation statements to expressly provide that such financing statements can be continued in Maryland by filing a proper continuation statement within the six months before June 30, 2006. This legislation would apply in those circumstances in which Maryland is the appropriate jurisdiction for perfection by filing under the Current UCC.
This article is intended to provide information on recent legal developments. It should not be construed as legal advice or legal opinion on specific facts. Pursuant to applicable Rules of Professional Conduct, it may constitute advertising.
