Source: https://www.cscglobal.com/blog/new-jersey-important-new-ucc-laws-impact-secured-parties/
Timestamp: 2019-04-19 10:20:25+00:00

Document:
On May 11, 2015, a new law took effect in New Jersey that was intended to address a perceived problem with the filing of fraudulent UCC records. However, the new law affects all UCC records, not just the small number of fraudulently submitted records. In addition, the central filing office in New Jersey recently adopted new administrative rules that impact the UCC filing process. These changes may increase transaction costs and potentially create new traps for the unwary UCC filer.
Those who file UCC records with the New Jersey Division of Revenue must understand what impact the new statute and rules will have on their procedures. This article explains the most significant changes, what is required for compliance, and offers best practice suggestions for minimizing the risks.
The governor signed New Jersey Assembly Bill 2481 on May 11, 2015, and the new law took effect immediately. The law applies only to UCC records filed on or after that date. Among other provisions, the new law changed the requirements for sufficiency of a financing statement under N.J. Stat. § 12A:9-502 and provided the filing office with additional reasons for rejection of UCC records under § 12A:9-516(b).
These changes were intended to provide the Division of Revenue and Enterprise Services (“DORES”), the state’s central UCC filing office, with additional tools to combat the fraudulent filing of UCC records. Only a small fraction of UCC records submitted for filing with DORES are potentially fraudulent. Yet the new measures will impact all UCC records.
The new reasons for rejection are generally related to the unique indicia of fraudulent UCC records. Most legitimate UCC filing activity will not be affected. However, that is not the case with the changes to § 12A:9-502. That section impacts all UCC records because it sets forth the requirements for sufficiency of a financing statement. A UCC record that fails to comply with § 12A:9-502 generally is not sufficient and will not be effective even if the filing office accepts and indexes the record.
In the majority of cases, § 12A:9-502(a)(2) poses little risk for the secured party. Most secured parties file under their actual name or a variation of the name close enough to allow an interested party to identify the actual secured party or representative. However, it is not clear if a trade name of the secured party would be sufficient in all cases. Many secured parties use a trade name as the name of the secured party. If that trade name is not registered in New Jersey, an interested party arguably would not be able to know where to look for the actual name of the secured party. As a result, use of a trade name that is not registered in New Jersey arguably does not identify the secured party or representative and could render the financing statement ineffective.
The other amendment of special concern to secured parties changed the requirements for the indication of collateral in § 12A:9-502(a)(3). Under the new law, the financing statement must indicate not only the collateral covered by the security interest—it also must indicate that the collateral falls within the scope of Article 9. Thus, a financing statement that omits the indication of scope would not comply with the requirements for sufficiency under the plain text of this provision. As a result, the financing statement may not be effective.
In December 2014, DORES published proposed changes to the UCC rules in the New Jersey Register. After receiving no public comments, DORES officially adopted the new rules.
The most immediate impact of the new rules is on the filing method. Effective July 1, 2015, N.J. Admin. Code § 17:33-2.9 will require electronic filing of all UCC records. While there is a hardship exception permitted at the discretion of DORES, all indications are that exemptions will not be granted. Thus, New Jersey will become the second state to mandate electronic filing of UCC records.
While the current, web-based electronic filing system allows most actions and indications permitted on written forms, except for an assignment on an initial financing statement, it does not allow for XML B2B communication of records. All UCC records must be filed by user data entry through the website.
Most UCC filers will need to have someone manually input the record data through the DORES web-based interface. The result is that UCC filing in New Jersey will require more personnel resources for data entry and tracking of payment information. Manual input also substantially increases the likelihood of data-entry mistakes or human errors that could leave the secured party unperfected.
Unfortunately, the new rules do not offer one of the most important advantages of electronic UCC filing secured parties enjoy in other states: immediate time of filing. Under the new rule set forth in § 17:33-2.4(a)(4), the file date assigned to an electronically submitted UCC record will be the “work day” when the DORES computer system analyzes the relevant transmission for compliance with the filing requirements.
If the record is transmitted outside of office hours or when the filing office is closed for holidays or inclement weather, the file date could be as late as the close of business on the next work day. Thus, a record transmitted electronically at 5:05 p.m. on the Friday before a long holiday weekend might receive an official time of filing of 5:00 p.m. the following Tuesday.
There are some measures UCC filers should take to comply with the new statute and rules. Those who file UCC records should review their procedures to ensure that they comply with the new secured party name, collateral indication, and system limitations.
To comply with the new secured party name requirements in § 12A:9-502(a)(2), filers should provide the actual name of the secured party or representative on the financing statement. Filers should generally avoid using a trade name for the secured party or representative unless the trade name is registered in New Jersey. Otherwise, an interested party would not know where to look to determine the identity of the secured party or representative.
A filer must also comply with the new collateral content requirements of § 12A:9-502(a)(3). The collateral field on all financing statements filed in New Jersey should include a statement to the effect that all the described collateral falls within the scope of Article 9 as enacted by the state. Omission of that language could render the financing statement ineffective.
Because the DORES computer system does not allow a filer to indicate an assignment on an initial financing statement, filers that wish to reflect such a transaction will need to be creative. In general, such an indication is optional because under § 12A:9-511(a) only the assignee listed on the initial financing statement is a secured party of record. Nevertheless, some filers will want to have the assignment reflected in the record.
Perhaps the simplest way to reflect an assignment without the assignor becoming a secured party of record is to describe the assignment in an exhibit. The DORES system allows the filer to attach an exhibit in PDF format, so this information will be available to those who search the UCC record.
Filers must also take into account that UCC records transmitted electronically to the filing office in New Jersey may not be filed the same day. Therefore, it is best to avoid waiting until the last minute, especially if the record must be filed before a purchase-money security interest deadline or is a continuation statement with a rapidly approaching lapse date.

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