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A Trap for the Unwary

HB 1360, which amended N.D.C.C. § 41-09-86 and which clarified the rule for the continuation of financing statements, was effective August 1. This law also created a possible trap for secured parties. The old law of July 1, 2001, was silent as to whether UCC-1A's needed be continued every five years; the law effective August 1, 2003, requires that a UCC-1A be continued every five years or the filing will lapse. So, if you haven't already done so, creditors need to put the UCC-1A's filed during the two years between July 1, 2001, and August 1, 2003, into a tickler system for refiling.

The 2001 version of N.D.C.C. § 41-09-86 stated only that a filed financing statement is effective for a period of five years after the date of filing. There was no distinction between whether the financing statement was filed in the personal property records (a UCC-1) or the real property records (a UCC-1A). We all know that a financing statement filed with the central indexing system lapses after five years unless these filings were continued, but there has been some confusion about whether a financing statement filed with the County Recorder is effective for only five years and must be continued to maintain priority like a central indexing filing or whether it exists until it is terminated. Supporters of the amendments to § 41-09-86 gave testimony that the amendments are necessary to clarify that a financing statement is effective for five years, no matter where it is filed. The emphasis in the legislative history is on the term “clarify,” suggesting that a financing statement filed as a fixture filing in the real property records was never meant to be treated as operative indefinitely but rather must be continued like a personal property filing. The effect of all this is that lenders should ensure that fixture filings are on a suspense system to be continued after five years, including those filings made after the 2001 law.