Recently we received the following question from a reader:
If a UCC has lapsed about one month prior to the secured party filing a continuation, is the continuation effective, or should the secured party file a new UCC? If the secured party should file a new UCC, must the secured party obtain authorization from the debtor, or is the underlying security agreement signed by the debtor at the time of the initial UCC filing valid authorization for the new filing?
It’s a common question, and here’s our response:
Section 9-515 provides that “Upon lapse, a financing statement ceases to be effective and any security interest or agricultural lien that was perfected by the financing statement becomes unperfected, unless the security interest is perfected otherwise. If the security interest or agricultural lien becomes unperfected upon lapse, it is deemed never to have been perfected as against a purchaser of the collateral for value.”
So, once the financing statement lapsed, the filing of a continuation (which likely would not be accepted by the filing office) would not have any legal effect. The secured party should file a new UCC-1 financing statement.
Fortunately, the secured party does not need to obtain any additional authorization from the debtor. The underlying security agreement, signed by the debtor initially, continues to provide authorization for the secured party to file a new financing statement.
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