News
July 1, 1996

Client Memo: Important Changes in Colorado Financing Statements Filings

Arnold & Porter Article
Colorado has changed its procedures for filing financing statements under Article 9 of the Uniform Commercial Code (UCC). Recent legislation in Colorado, Senate Bill 96-098 (the "1996 Amendments"), requires all secured parties to renew their financing statements within the next 18 months, or else lose the priority of their original filing date, even if the financing statement would not otherwise have expired . Moreover, the debtor's signature will no longer be required on most filings, and the filing fee structure has changed.
 
Colorado's Central Indexing System
 
To enable lenders and purchasers to check the public records for competing security interests, most states' versions of Article 9 requires financing statements to be filed in a location designated by statute: either the county where the collateral is located or at the Secretary of State's office. To preserve the priority of the security interest on this first filing date, and to keep records current, a continuation statement must be filed every five years. Colorado amended this structure in 1992 by adding a voluntary central filing system for "effective financing statements" for agricultural liens. A much larger change is in the offing as Colorado began its switch-over to a new Central Indexing System (CIS) on July 1, 1996.
 
The CIS will contain a computerized, on-line record of all UCC financing statements, no matter where filed. Financing statements will still be required, but most will not be able to be filed with the county or with the Secretary of State's office, taking away the fear that a financing statement might be ineffective because it was filed in the wrong place. As the CIS will only index the existence of the statements, prospective lenders and purchasers will need to contact the actual place of filing to obtain a copy of any desired statement. Financing statements covering certain types of collateral will still be required to be filed only in the relevant county: those describing security interests in (1) timber to be cut; (2) materials removed from the ground (or accounts arising from these materials); and (3) goods that are or are to become fixtures.
 
The 1996 Amendments require all statements filed after July 1, 1996 to be simultaneously recorded on the CIS. Similarly, the normal continuation of existing financing statements that expire (at the end of the 5-year period) between July 1, 1996 and Dec. 31, 1997 will be recorded on the CIS. However, all other existing, validly filed statements (those that would not expire until after December 31, 1997) will lose their priority unless a continuation statement is filed between July 1, 1996 and December 31, 1997 (the "window period). Only a continuation statement filed within this window period will preserve the priority of the original statement. By virtue of filing a continuation statement during the window period, the financing statement will remain effective for five years form the expiration date of the original filing.
 
Other Changes in Filing Procedures
 
The statements themselves will change under the 1996 Amendments. In apparent preparation for future "on-line" filing, the debtor's signature will no longer be required on standard UCC-1 financing statements, continuation statements, assignments, amendments, and termination statements. (Debtor and secured party will still be required to sign a separate security agreement.) Although this will make filing of all of these documents much easier, it raises the specter of mischievous debtors filing unsigned termination statements on their own to remove statements from the public record, as well as mistaken filings clouding the title of otherwise unencumbered property.
 
The fee structure will also change under the new system, as it will cost $15 to file and index most financing, continuation or termination statements. Continuation statements required to be filed only because of the refiling provisions during the 18-month window will only cost $5. Also, a $1 surcharge will be added to all fees to help defray the costs of the needed new technology.


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Please feel free to contact Mark H. Boscoe in our Denver office at (303) 863-1000 if you have any questions about filing the necessary continuation statements, the 1996 Amendments, or any other Article 9 issues in Colorado.
 
This memorandum is intended to provide some general background and guidance on the 1996 Amendments, and should not be considered legal advice for any particular situation.
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