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New Jersey's Recent Changes to UCC Laws - Impact on Secured Parties

June 24, 2015

Effective May 11, 2015, the New Jersey governor signed new amendments to Article 9 of the Uniform Commercial Code (UCC) as set forth in Title 12A. These new laws, originating from Assembly Bill 2481, are intended to deter and provide civil and criminal penalties for the fraudulent filing of UCC financing statements. In addition, the New Jersey Department of Treasury, the central UCC filing office in the State, adopted new administrative rules that impact the UCC filing process. These changes may potentially create new traps for the UCC filer.

Additional Information Required for Financing Statements to be Sufficient 

Pursuant to new Section 12A:9-502(a)(2), a financing statement now must provide the [legal] name of the secured party or [the legal name of] the representative of the secured party, which discloses the identity of the secured party or representative. This change is a minor consequence for a secured party using its actual name or a variation of its name that enables a third party to identify the actual secured party. However, for a secured party using a fictitious or trade name or some other affiliation, the risk that the financing statement may be rejected by the filing office increases. Possible Trap: A financing statement with an unregistered trade name for the secured party could be refused and unrecorded. Also, consider an unrecorded assignment of interest between a secured party and an assignee where the assignee relies upon the original financing statement containing the original filer's name. Is it possible that under New Jersey's new law, the original financing statement may not effectively perfect the assignee's interest in the collateral if the assignment is not recorded? This alone may create many issues for a secured creditor involved in private labeling.

The other noted amendment to Section 12A:9-502 is set forth in paragraph (a)(3), which now requires that the financing statement must indicate that the collateral is within the scope of Article 9. Consequently, a financing statement that omits the indication of scope would not comply with the requirements for sufficiency, which could cause it to be rejected by the filing office. Possible Trap: This amendment can pose an interesting twist for leased equipment where an equipment lessor files a financing statement under a true lease theory for notice purposes, where the equipment lease is subsequently determined to be disguised as a secured transaction. One way to address this risk is to indicate on the face of the UCC financing statement that, although it is a true lease filing, the lease may be determined to be a security interest governed by Article 9 of the UCC. Such indication may sufficiently comply with the new law and avoid a negative impact on perfection and priority.

New Filing Process

Refusal to Accept Financing Statement

Under amended Section 12A:9-516(b), New Jersey provides its filing office with additional authority to refuse to file and reject a UCC financing statement filed against an individual debtor. The newly-added reasons are set forth in paragraph 8(A) through (E). Under these provisions, the filing office can refuse to accept a financing statement if the office, among other considerations, has "reasonable cause to believe the record is materially false or fraudulent." The filing office may also reject for filing a UCC financing statement that asserts a claim against a current or former employee or officer of a federal, state, county, or other local governmental unit that relates to the performance of the officer's or employee's public duties but for which "the filer does not hold a properly executed security agreement or judgment from a court of competent jurisdiction." Lastly, the filing office may turn away a UCC financing statement that indicates that the debtor and the secured party are "substantially the same." These provisions further exculpate the filing officer from liability for refusing to file any UCC financing statement under the new authority. Notably, regulated financial institutions are protected from the above enhanced filing office powers, but the filing office may request that an entity formed outside New Jersey verify its regulation or licensure as such in the jurisdiction under whose law the entity was organized. The definition of regulated financial institutions covers traditional lending entities such as banks, credit unions and financing companies, but is not broad enough to protect new market lender/investors such as private equity funds, development authorities, insurance funds and the like. Possible Traps: These new powers permit the exercise of wide-spread discretion by the filing office, and it remains to be seen how aggressively the Department of Treasury staff will interpret their new role. To prepare, filers should understand why a UCC financing statement may now be rejected, prepare to respond to questions from the filing office, and consider pre-filing to accommodate filing delays or requests for additional information.  

Electronic Filing Required

Effective July 1, 2015, under N.J. Admin. Code § 17:33-2.9, all UCC records must be filed electronically. New Jersey will become the second state to mandate electronic filing of UCC records. Notably, filers must take into account that UCC records transmitted electronically in New Jersey may not be recorded on the same day; therefore, all filers should try to file financing statements well in advance of any deadline that may determine lien perfection, especially if seeking a purchase-money security interest or filing a continuation statement.

New Remedies for Wrongful Filing

The new law also includes penalties for knowingly or intentionally filing a false UCC financing statement, including designation as a crime of the third degree. If the filer is convicted of the violation, the court may find that the UCC financing statement is ineffective and may order the filing office to terminate the UCC financing statement and may order restitution. The debtor named in the UCC financing statement may also file a civil action against the person that filed the financing statement seeking appropriate equitable relief or damages. Possible Trap: Delinquent debtors may retaliate in collection and enforcement actions by alleging violation of the new law, miring filers in unwarranted litigation.


Filers must become familiar with these significant, non-standard twists to New Jersey's UCC Article 9 and related regulations, including taking the following additional steps:

  1. Identify the actual legal name for the secured party or representative;
  2. Indicate that the collateral is within the scope of Article 9;
  3. Pre-file when feasible; and
  4. Make sure you don't fall within any of the new traps that may render your financing statement ineffective or cause it to be rejected by the filing office under its expanded powers.

If you have any questions about the subject matter of this e-alert or about secured transactions in general, please contact Sherry Lowe Johnson at (312) 985-5599 | or Lisa S. Wren at (609) 640-8415 | Sherry Lowe Johnson is a Member in the firm's Banking and Finance, Corporate Restructuring and Bankruptcy, and Litigation practice groups. Lisa S. Wren is a Member of Clark Hill's Banking and Finance group and is located in the firm's Princeton, NJ office.

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