Recent Revisions to the Laws Governing Secured Transactions May Make it More Difficult to Continue a Uniform Commercial Code Security Interest

The Ohio law that governs secured transactions was significantly revised as of July 1, 2001. Not only have the steps necessary to perfect a security interest changed, the formerly simple filing of a continuation statement may no longer be so simple.

BEWARE OF FILING CONTINUATION STATEMENTS: RECENT REVISIONS TO OHIO’S LAW ON SECURED TRANSACTIONS MAY TURN A FORMERLY SIMPLE TRANSACTION INTO A QUAGMIRE

Most lenders who wish to secure a loan extended subsequent to July 1st will probably have been advised by counsel in connection with new loan transactions and, therefore, should be apprised of the new steps required to secure a loan. It is, however, foreseeable that some lenders with a perfected security interest in place prior to the July 1, 2001 revisions may not communicate with counsel before filing a continuation statement, i.e., a statement necessary to “preserve” a security interest after the interest has been in place five years.

A continuation statement that was filed before July 1, 2001 will, as in the past, be effective for five years after the lapse date of the original financing statement. For example, a financing statement that was due to lapse on June 15, 2001 but that was effectively continued by the timely filing of a continuation statement on June 1, 2001, would not lapse until June 15, 2006.

Unfortunately, the simple filing of a continuation statement subsequent to July 1, 2001 to continue a pre-July 1, 2001 financing statement is unlikely to be sufficient. Rather, such a continuation statement would only properly be filed if: 1) the original financing statement was filed in the same location(s) as would be required by the new law; and 2) the continuation statement and original financing statement, taken together, satisfy all of the requirements for an initial financing statement under the new law. This standard is important for two reasons. First, the new law imposes different requirements on financing statements than the former law. Second, the filing location for financing statements has changed significantly under the new law. Thus, in certain situations it will not be possible to file an “ordinary” continuation statement to preserve a pre-July 1, 2001 security interest.

In other words, a careful analysis of the new law should be undertaken before a continuation statement is filed. If you would like more information about the new filing process or would like to discuss how we can assist you in filing a continuation statement, please contact Ellen M. Kramer at 216-736-7208 or emk@kjk.com.