clyme - SECURED OR UNSECURED?)CONFLICTING REQUIREMENTS OF...

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* Graduating from Southern Illinois University School of Law in May of 2007. 1. United States v. Crestmark Bank, 412 F.3d 653 (6th Cir. 2005) (hereinafter Crestmark ), cert. denied, Crestmark v. U.S., 127 S.Ct. 41 (Oct. 2, 2006). 707 S ECURED OR U NSECURED ? ) C ONFLICTING R EQUIREMENTS OF THE U NIFORM C OMMERCIAL C ODE AND THE T AX C ODE N OTICE F ILING S YSTEMS L EAD C REDITORS TO A F ALSE S ENSE OF S ECURITY : A NALYSIS OF U NITED S TATES V . C RESTMARK B ANK , 412 F.3 D 653 (6 TH C IR . 2005) Elizabeth A. Wieneke Clymer * I. INTRODUCTION The United States v. Crestmark Bank 1 is a pinnacle case in the current battle concerning the sufficiency of notice for liens on property. The problem stems from the Uniform Commercial Code (UCC) and the United States Internal Revenue Code (Tax Code), which create two different systems for filing a notice of a lien on property. Although both the UCC and the Tax Code have notice filing systems, the methods for indexing the filing systems are different. It is the difference in indexes that is the hex of the problem. Imagine this scenario. You are the President of Bank X and a major part of your business is loaning large amounts of money to companies, including Company Y. Company Y, as security for its loan, pledges business property as collateral. Thus, if Company Y defaults on its loan, you can seize Company Y’s property as payment of its debt. In order to make sure you have first priority to Company Y’s property in case of default, your bank must place a lien on Company Y’s property by filing a document called a financing statement. The financing statement perfects your security interest by providing notice to future creditors or purchasers that Bank X has a lien on Company Y’s property. The financing statement is filed pursuant to the UCC’s notice filing system, which requires the financing statement to be filed under the company’s name registered with the Secretary of State and is indexed alphabetically. If Company Y comes back to your bank later and requests an additional loan, in order to further protect yourself, and most importantly your money, you request the Secretary of State to run a search to find if there are any new
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708 Southern Illinois University Law Journal [Vol. 31 notices of liens on Company Y’s property prior to approving another loan. Since Bank X files financing statements to provide notice of liens on property under the UCC’s filing system, your bank requests the Secretary of State to run the search using Company Y’s name registered with the Secretary of State, which is “Company Y.” If other creditors have liens on Company Y’s property, then your bank will not have priority to seize Company Y’s property if it defaults on the loan. The search results determine whether your bank will continue to lend additional funds to Company Y. Little did you know that the IRS had filed a notice of a tax lien on
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clyme - SECURED OR UNSECURED?)CONFLICTING REQUIREMENTS OF...

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