Key Takeaways:
- A UCC filing publicly secures a lender’s interest in a business’s assets and establishes legal priority.
- A Notice of Assignment privately redirects payment to a new secured party after rights are transferred.
- A UCC-3 updates the original filing when assignments, continuations, or terminations occur.
- Businesses must verify notices, follow updated payment instructions, and track UCC timelines to avoid disputes.
What Is a UCC Filing and What Does It Do?
A UCC filing is a public notice that a lender or factor has a security interest in a business’s assets. It lets other creditors know that specific collateral, such as receivables or equipment, is already pledged.
This filing is recorded with the Secretary of State and becomes part of the public UCC index. Because it establishes priority, the secured party gains legal protection if multiple claims arise.
Businesses typically see a UCC filing when they take out loans, factor invoices, or finance equipment. It helps ensure the lender’s rights are recognized and reduces disputes over ownership of the collateral.
What Is a Notice of Assignment Under the UCC?
A Notice of Assignment is a written communication telling an account debtor that payment rights have been transferred to a new party. It ensures the customer knows exactly who is now entitled to receive those funds.
This notice is separate from a UCC filing because it affects payment direction rather than public priority. Once delivered, it legally shifts the obligation to pay the assignee instead of the original secured party.
Businesses receive these notices in transactions like factoring, loan transfers, or equipment financing. They play a crucial role in preventing misdirected payments and keeping financial records accurate.
Required Elements of a Notice of Assignment
- Assigned Account: Identifies the specific receivable or obligation being transferred.
- New Assignee: Names the party now entitled to receive payment.
- Payment Instructions: Provides updated remittance or banking details.
- Transfer Statement: Confirms that rights have officially moved to the assignee.
- Valid Authentication: Includes a signature or verification showing the notice is legitimate.
- Effective Date: States when payment must begin flowing to the new party.
What Does UCC Article 9 Say About Assignments?
Article 9 regulates the transfer of accounts, chattel paper, and payment intangibles. It establishes how security interests attach, perfect, and maintain priority during assignments.
Once payment rights are assigned, Article 9 outlines how account debtors must respond. After receiving proper notification, payment to the wrong party may not discharge the obligation.
These rules ensure that assignees can enforce rights smoothly during secured transactions.
UCC 9-404 – Defenses and Claims
Before receiving notice, account debtors may assert certain defenses against the assignee. After notice, many new defenses cannot be raised against the party who now holds the payment rights.
UCC 9-406 – Notification of Assignment
This section requires account debtors to pay the assignee after receiving valid notice. If they continue paying the assignor, they risk owing the balance again.
What Is the Role of Each Party in an Assignment?
The debtor is the business whose assets secure the transaction. The assignor is the original secured party transferring rights, while the assignee becomes the new secured party.
The account debtor is the customer obligated to pay the assigned receivable. The secured party of record remains on the public filing until a UCC-3 officially updates the information.
Each party has distinct responsibilities to ensure payment accuracy and proper documentation.
How Is a UCC-3 Used for Assignments, Amendments, and Terminations?
A UCC-3 updates the existing UCC-1 to reflect a change in secured party, continuation, or termination. When rights transfer, the assignee files a UCC-3 assignment to appear in the public record.
Accurate UCC-3 filings preserve priority and reduce confusion during lien searches. Without them, public records may show outdated secured parties.
Assignment vs Continuation vs Termination
| Action Type | Purpose | When It’s Used |
| Assignment | Transfers the secured party’s rights to a new lender or factor. | Used when loans or receivables are sold or ownership changes. |
| Continuation | Extends the effectiveness of the original UCC-1 filing. | Filed within the last six months before the five-year expiration. |
| Termination | Removes the lien from the public record. | Filed after payoff or when the secured obligation is fully satisfied. |
What Happens After a Notice of Assignment Is Sent?
After receiving notice, the account debtor must update internal systems to pay the assignee. Payment should begin immediately according to the new remittance instructions.
If conflicting notices appear, the account debtor may request clarification or proof of assignment. Ignoring a valid notice can create double-payment liability.
Proper acknowledgment ensures smooth payment flow and reduces operational risk.
What Common Mistakes Occur With UCC Filings and Assignments?
Incorrect debtor names, incomplete collateral descriptions, and wrong filing jurisdictions are common errors. These mistakes expose secured parties to priority disputes or loss of perfection.
Similarly, defective NOAs cause payment delays and confusion for account debtors. Failure to file UCC-3 assignments leaves outdated information in the public record, creating compliance problems.
Missing continuation deadlines can cause liens to lapse, eliminating the secured party’s perfected status entirely.
What Are Real-World Examples of UCC Filings and Assignments?
Example 1 — Loan Sold to a New Lender
A lender originates a secured loan and files a UCC-1. After selling the loan, the new lender files a UCC-3 assignment and sends a Notice of Assignment to redirect payment.
Example 2 — Trucking Factoring With a Notice of Assignment
A carrier factors invoices, and the factor sends NOAs to brokers and shippers. A UCC-1 secures the factor’s interest, and a termination is filed when the relationship ends.
How Long Does a UCC Filing Remain Effective?
A UCC-1 remains effective for five years from the filing date. A continuation filed within the final six months extends it for another five years.
Assignments do not extend the expiration date automatically, so assignees must track deadlines. A lapsed filing loses priority and creates exposure.
Maintaining accurate timelines protects lenders and factors from costly mistakes.
How Should Businesses Respond When They Receive a Notice of Assignment?
Businesses should review the notice, confirm the assignee, and update payment procedures. A UCC search may help verify the secured party of record.
Internal systems must be updated quickly to avoid misdirected funds. If any detail appears unclear, the business may request proof before sending payment.
Taking these steps ensures compliance and prevents disputes.
Final Thoughts
UCC filings and Notices of Assignment protect both lenders and businesses by ensuring clear rights, priority, and payment direction. Understanding how these documents work together helps prevent disputes and keeps financial operations efficient.
Accurate filings, verified notices, and consistent monitoring create stable and predictable secured transactions. With proper documentation and processes, assignments remain smooth and legally sound.
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