UCC Termination Agreement: What It Is and How It Works

When a lender provides a loan to a borrower, they often require the borrower to provide collateral to secure the loan. Collateral can be almost anything of value, such as property, inventory, or accounts receivable. To protect their interest in the collateral, lenders file a Uniform Commercial Code (UCC) financing statement with the state. This filing allows the lender to take possession of the collateral if the borrower defaults on the loan.

However, there may come a time when the borrower wants to sell the collateral or refinance the loan. To do so, they must first remove the UCC filing from the state records. This is where a UCC termination agreement comes into play.

A UCC termination agreement is a legal document that is used to remove a UCC filing from the state records. It is typically used when a loan has been paid off or a borrower has sold the collateral and wishes to release the interest of the lender in the collateral. By using a UCC termination agreement, the borrower can ensure that the UCC filing is removed from the state records, and the lender no longer has an interest in the collateral.

To create a UCC termination agreement, both the borrower and the lender must sign the document. The agreement must include the names and addresses of both parties, the UCC filing number, and a statement that the lender releases any interest in the collateral.

Once the UCC termination agreement is signed, it must be filed with the state where the UCC filing was originally made. This filing notifies the state that the UCC filing has been terminated, and the lender no longer has an interest in the collateral.

It is important to note that a UCC termination agreement only removes the UCC filing from the state records. If the collateral was pledged as security in other agreements, such as a mortgage or lease agreement, the borrower may need to obtain additional releases or consents to fully release the collateral.

In conclusion, a UCC termination agreement is an important legal document that is used to remove a UCC filing from the state records. By doing so, the borrower can sell the collateral or refinance the loan without any encumbrance from the lender. If you are a borrower or a lender, it is important to understand the process of creating and filing a UCC termination agreement to ensure that your rights and interests are protected.