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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Business Law
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Experience:  All corporate law, including non-profits and charitable fraternal organizations.
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we signed a prepay agreement with a customer. They prepaid

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we signed a prepay agreement with a customer. They prepaid $90,000 and filed a UCC-1. We shipped product. Now bank is concerned about the UCC-1, even though they have clear first call on all collateral. What should we do?
Thank you for your question. I look forward to working with you to provide you the information you are seeking.

If the bank is worried about the UCC-1 priming their loan, then they will require a subordination agreement, which is a contract that states that the UCC-1 holder agrees that their loan would be secondary to the bank loan.

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Customer: replied 4 years ago.

Thank you for the good info... How can the customer prime the bank's loan, especially after they have received the product? Can filing a UCC-1 "automatically" prime a specific asset?

The first to file a lien is first in line to collect. So if they perfected their UCC 1 before the bank filed their lien, they are first in line to collect, which is why the bank is worried and why they will likely want to have a subordination agreement.
Customer: replied 4 years ago.

Thank you! I'm learning!

the bank has first lien and tells me they have "perfected" it.

what did the customer do to file its UCC-1?

Can anyone file a UCC-1 for any reason? What is necessary to make a filing?

Thank you for your response.

The bank may have perfected their lien, but the order of liens in the law is that the first perfected lien gets paid first, so evidently the customer perfected their UCC-1 by filing it with the secretary of state before the bank perfected their lien.

Anyone can file a UCC-1 for money they claim they are owed and it is filed with the secretary of state's office and it is just a matter of filing a form.
Customer: replied 4 years ago.

the bank perfected their lien before the customer. Does the bank have anything to worry about?

If the bank perfected their lien first, the bank would be first in line to collect and would not have anything to worry about.
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