Real Estate vs. UCC

Similarities and Differences

This article addresses the similarities and differences by comparing the filing of a UCC financing statement with the recording of a real estate document.

Even though the UCC gets entangled with real estate only when fixtures, minerals, timber, crop or consumer goods are involved, understanding the differences between the recording systems for personal property liens and real property liens illuminates the most significant features of both types of recording/indexing systems.

For those of you who frequently deal with the issues involved in UCC filing and searching , but only infrequently deal real estate recording and searching, keeping in mind the points made in this article may make better sense out of why real estate recorders act differently that UCC filing officers.

A Layman's Comparison

The simplest way that I compare real estate statutes (RE) and the Uniform Commercial Code (UCC) is to say that the UCC is to personal property as mortgages/trust deeds are to real property. Although this comparison is inaccurate in the details, as any attorney would recognize, it is a good place to start in understanding both the statutory and practical differences between real estate recording and UCC filing. (Note that the term "mortgages" will be used in this article as shorthand for mortgages and deeds of trust.)

It would be more accurate to say that the security agreement behind each UCC loan transaction is the practical equivalent of the mortgage behind each real estate loan. Each of these agreements gives one party-the secured party (UCC) or mortgagee (RE)-a security interest in property owned by the other party-the debtor (UCC) or mortgagor (RE)-as collateral for a loan. The filing of a UCC financing statement and the recording of the mortgage give notice of the lien to the rest of the world.

Here are twelve ways to compare UCC filings with real estate recordings:

1. Real estate is a document recording system/UCC is a notice filing system

Both real estate and UCC laws put the public on notice about defined types of transactions, but the ways they do this are very different. Recording a real estate document means literally that the original document representing the transaction-the deed, mortgage, etc.-is placed in the public record at the recording office. Therefore, anyone who has a need to know about the transaction can read the actual documents in their entirety.

Under the UCC, a financing statement is usually said to be "filed." This financing statement is not the transaction itself, but rather a summary of the transaction intended to notify the public in a general way that the secured party has some kind of lien on specified personal property of the debtor. Anyone who needs to know the details of the actual transaction must contact the secured party, who keeps the security agreement and other documentation in its own private, internal records.

2. Real estate is an asset-based system/UCC is a liability-based system

The old cliché is that no more real estate is being made; that's an important distinction between real estate law and the UCC. Each local recording office has under its responsibility a certain area of land each piece of which is identifiable on its records. Therefore, every document recorded points in some way, direct or indirect, to specific, known parcels of land. Like motor vehicle records (which are personal property not subject to the UCC but to separate state lien laws), we can say that real estate recording systems are asset-based.

Personal property, on the other hand, can vary from the very specific and identifiable-for example, a certain farm tractor-to the wholly intangible-for example, accounts receivable. The assets that collateralize a debt under the UCC are only identified in the collateral statement on the financing statement. Therefore, UCC systems are designed to give notice of liability, not to catalog assets.

3. All real estate documents are recorded in a county or other local office/many UCC financing statements are filed in a central state agency

Since UCC filings do not have to connect to an asset-based system, the filing system does not need to be localized. Therefore, in most states, UCC filings other than those related to real estate collateral are maintained at a central state agency, usually in the secretary of state's office.

4. Real estate documents are accepted by 3,600 recording offices/UCC financing statements are accepted by over 4,300 filing offices

Every real estate recording office must accept UCC filings with certain personal property collateral-for example, a telephone system wired throughout a building-which may also be considered fixtures. Therefore, in a sense real estate recording offices are a subset of UCC filing offices.

The other 700 UCC filing offices that are not real estate recording offices are accounted for by 50 central state filing offices, plus local variations on the UCC model act that require UCC filing in towns in most New England States and in separate offices in Pennsylvania.

5. Real estate law consists of sometimes loosely related statutes that vary widely from state to state/ UCC law consists of state variations on a compact, nationally promulgated model act

UCC professionals joke endlessly about the lack of uniformity in the "Uniform" Commercial Code because many states, in the process of enacting their own version of the model act, have amended the model act in a variety of ways that confuse and confound even UCC documentation professionals.

In truth, however, the UCC is very uniform by comparison to real estate laws. The only area of real estate law where model acts have been developed is in the form of notarial certificates, and even in this one aspect of real estate documentation there are three different model acts for each state to choose from.

6. Real estate recording is document-based/ UCC filing is forms-based

Although some states have promulgated standard documents to deal with various aspects of real estate transactions, there is nothing like the standards developed for forms that are used for UCC financing statements and other UCC filings. In real estate, you prepare a document for recording; in UCC, you fill in a UCC form for filing.

This is not to say that forms are not used in real estate transactions; many states require transfer tax and other types of forms to accompany certain types of documents, but the documents themselves are not forms. Nor is this to say that real estate is rules-based whereas UCC is forms-based. Both types of documentation require adherence of the content of the document or form to statutory requirements.

7. Each real estate recording has a life of its own/A UCC filing may include many related forms

In the vocabulary of the UCC, a filing consists of an original financing statement, any subsequent amendments to the original financing statement, and any continuations to the original financing statement. All these related forms, taken together, comprise an active UCC filing. The indexing systems used to track UCC filings generally are designed to reflect the current status of the filing, that is, name and address changes and assignments are all recorded in a master computer record as changes occur.

In a real estate indexing system, on the other hand, each document usually stands on its own. For example, an assignment is indexed separately in the grantor/grantee index of the typical recording office, and except in the document itself, there is no indication in the indexing system as to where the original mortgage is located.

8. A real estate recording is forever/ A UCC filing is time limited

Once a real estate transaction is recorded, the document copy is essentially maintained in the recorder's system for all time. In the case of a mortgage, for example, the satisfaction is recorded with a reference-book & page, etc.-back to the original mortgage document, and the two documents remain on the record although the transaction is complete.

A UCC filing is typically "active" for a period of five (5) years, unless continued for an additional five years at a time. During each five year period, the filing may be "amended" any number of times, for example, for a change in the debtor name, an assignment to a new secured party, or a change in the collateral securing the underlying debt. Also during any five year period, the filing may be "terminated" if the underlying debt is paid off.

Unlike a mortgage, a UCC filing will automatically become ineffective-"lapse"-at the expiration of the five year period unless a continuation statement is filed, typically, within six months prior to the lapse date.

When a UCC filing is terminated or lapses, the records relating to the filing are literally deleted from the record-keeping system of the filing office. (A copy of the forms as they were filed will usually continue to exist on some imaging medium such as microfilm, but the indexes by which the forms can be accessed will no longer be available to a searcher.)

9. A mortgage is satisfied, released or canceled/A UCC filing is terminated or lapses

There is a similarity between the law of real estate satisfactions and the law of UCC terminations. Both typically contain provisions requiring the lender to submit to the recorder, or to the debtor for recording, a termination form (UCC) or a release of mortgage document (RE) upon request of the debtor after the debt is paid.

However, there is in fact much confusion in real estate circles because of the UCC's use of the word "release" to refer to a UCC change filing that does not terminate the original financing statement. In UCC parlance, a release usually refers to a partial release because a full release would usually be the equivalent of a termination.

10. Real estate documents are recorded and returned/UCC transactions are filed and acknowledged

Here's another confusing difference in the way these two types of documents are handled. It is usually not necessary to send a copy with a real estate document. You just send in the original; the recording office stamps and images it; and returns the original document to you for safekeeping. (Just more than 100 real estate recording offices, in Louisiana in particular, do not return the original, requiring a copy to be submitted for acknowledgment of the recording reference information.)

The typical UCC form, on the other hand, has traditionally (until recently) been composed of three parts, carbon interleaved. The third part is called the "acknowledgment copy." The filing office stamps the three part form with filing reference numbers, the imprint of which is on the third copy because of the carbon, and returns the acknowledgment copy to the filer. This definition of the word "acknowledgment" has nothing to do with the "acknowledgment" on a real estate document-the notarial certificate.

Thus, when the UCC documentation specialist calls the recording office and says, "Where's my acknowledgment," the recorder responds, "It's on the document. What's the problem?"

11. Real estate documents may have exhibits, acknowledgments, etc./UCC filings may have attachments

A typical real estate document may include separate pages of legal descriptions of property, acknowledgments, and other materials required in order for the recording to be legally sufficient. Except for very simple transactions, such as a single mortgage release, most documents require multiple pages.

On the other hand, UCC forms, properly completed, usually do not require any additional pages beyond the form itself in order to be legally sufficient unless the space on the form itself is inadequate to list debtors, secured parties or collateral. Therefore, additional pages are known as "attachments" to the form. In some filing offices, the attachments are actually stored in files separate from the form itself because they are "oversizes." that is, the form is frequently 5" by 8" while the attachments are 8½" by 11", so the attachments don't fit in the drawers where the forms are filed.

12. Basic real estate recording fee structures are page-based/Basic UCC filing fee structures are forms-based.

Reflecting the differing needs for additional pages, the typical real estate recording fee in a state can be stated as so many dollars for the first page of the document and so many other dollars for subsequent pages. Additional fees are typically based upon transactions indexed, references to previously recorded documents, and document format requirements.

The typical UCC filing fee in a state can be stated as so many dollars for the form and so many dollars for each debtor name indexed. Some states charge for attachments, but many states have no fees for attachment pages, since, as noted above, there is in most cases no reason to attach anything to a UCC form as it is sufficient by itself as notice of the transaction.