Attorney David Lutz on Avoiding Common Pitfalls in UCC Article 9 Secured Transactions

 Secured transactions are central to commercial lending, yet even experienced financial institutions encounter avoidable mistakes that jeopardize their lien position or enforcement rights. Attorney David A. Lutz, J.D., MBA, a Minneapolis commercial attorney with more than 25 years of experience representing banks and secured lenders, regularly advises clients on navigating UCC Article 9 with clarity and precision. According to Lutz, many of the most damaging errors occur not during enforcement, but at the earliest stages of drafting and filing.

Below are several common pitfalls lenders face—and the steps they can take to prevent them.

1. Using Inaccurate or Incomplete Debtor Names

One of the most frequent and costly mistakes in Article 9 practice is an incorrect debtor name on the financing statement. Under the UCC’s strict naming rules, even minor deviations—such as missing punctuation, abbreviations, or trade names—can render a filing “seriously misleading.”

Lutz notes that lenders should always verify the debtor name from the public record of the formation document (for registered organizations) or the individual’s exact legal name (for individual debtors). Reliance on business cards, websites, or internal forms is a common source of error and can lead to a total loss of priority.

2. Filing in the Wrong Jurisdiction

Perfection by filing must occur in the correct filing office. For most debtors, this means filing in the state of the debtor’s principal residence (for individuals) or state of organization (for entities). Lenders sometimes default to filing where the collateral is located, which may work in real-estate related filings but not for personal property under Article 9.

Lutz frequently counsels lenders on multi-state transactions where collateral, borrowers, and guarantors are located across different jurisdictions. Filing in the wrong state can be fatal to priority.

3. Failing to Describe Collateral with Sufficient Precision

Collateral descriptions that are vague, overbroad, or incomplete can create significant enforcement challenges. While Article 9 allows generic categories such as “all assets,” this language is not appropriate—nor enforceable—in all documents.

According to Lutz:

• A security agreement must reasonably describe the collateral.

• A financing statement may be broader, but it must still accurately reflect the intended scope.

• Collateral such as deposit accounts, investment property, and commercial tort claims may require heightened specificity.

Failure to tailor these descriptions can undermine enforceability in both litigation and bankruptcy contexts.

4. Overlooking the Need for Control or Possession

Many lenders assume that filing a UCC-1 is sufficient for all personal property. However, certain collateral types require perfection by control or possession, including:

• Deposit accounts

• Electronic chattel paper

• Investment property

• Money and negotiable instruments

Lutz emphasizes that lenders often lose priority to competing creditors—or even to the borrower’s depository bank—because they failed to obtain control where required. Deposit Account Control Agreements (DACAs) and properly executed custody or securities account control agreements are essential tools.

5. Not Monitoring Continuation Deadlines and Changes in Circumstances

A financing statement is generally effective for only five years unless a continuation statement is filed within the six-month window before expiration. Lenders that fail to calendar continuation deadlines risk losing their perfected status entirely.

Additionally, changes such as:

• A debtor relocating

• A merger or corporate reorganization

• A change in the debtor’s legal name

• Significant collateral disposals

may require updated filings. Lutz advises lenders to audit their loan files periodically to confirm that perfection remains intact throughout the life of the loan.

6. Delaying Enforcement Actions After Default

Once a borrower defaults, delay can erode collateral value and weaken the lender’s position. Early consultation with counsel helps lenders understand available remedies, which may include:

• Repossession or self-help remedies

• UCC foreclosure sales

• Appointment of a receiver

• Setoff rights

• Judicial enforcement

Lutz notes that lenders who prepare early—often long before default occurs—tend to preserve more collateral value and achieve more efficient resolutions.

Conclusion

UCC Article 9 presents a complex framework, but with careful attention to drafting, filing, and perfection requirements, lenders can significantly reduce their exposure. Attorney David Lutz provides financial institutions with practical, business-focused guidance designed to maintain lien priority, strengthen enforcement rights, and avoid the common pitfalls that create litigation risk.