When revised Uniform Commercial Code Article 9 was adopted in 2001, the thought was that filing a UCC-1 Financing Statement with a single Secretary of State would create a lien on all the personal property collateral described in the UCC-1 anywhere in the United States and with a lien priority that could be determined by analyzing the UCC filings with that Secretary of State—i.e., there would be one place to search. As good as that idea seems, unfortunately, it is only partly true. At least one state, California, has non-Commercial Code laws that create a significant risk for a personal property secured lender relying on California personal property collateral.

Under California Code of Civil Procedure §697.510, a party holding a judgment can file a notice with the California Secretary of State and create a lien on all the judgment debtor’s personal property located in California. Likewise, a plaintiff obtaining an attachment lien has a similar right under California Code of Civil Procedure §488.405. These statutes create a potential conflict in the priority of judgment and attachment liens filed in California versus UCC-1 perfected liens filed elsewhere with respect to the California-sited personal property assets of a borrower organized outside California. California Commercial Code §9301(3) provides that with respect to "goods" (defined as "all things that are movable" and that includes equipment) "located in a jurisdiction, the local law of that jurisdiction governs…the effect of perfection or non-perfection and the priority of a non-possessory security interest in the collateral." Thus, for goods located in California, California local law determines issues of perfection and priority. California has a first-to-file rule for the priority of judicial liens. This implies that in those cases where a judgment creditor or attachment lien holder has filed a notice with the California Secretary of State before the equipment lenders’ UCC-1 is filed in the borrower’s state of organization, the judgment or attachment lien will be senior to the secured lender’s lien on personal property located in California.

To be safe, lenders relying on California personal property collateral will need to search California Secretary of State records for judicial and attachment lien notices even though a UCC-1 is properly filed against the borrower in its state of organization. On the other hand, while the issue certainly is not settled, in those cases where a lender files a UCC-1 in the state where the borrower is organized before the filing of a judgment or attachment lien notice in California, it seems most likely that the UCC-1 will take priority over the judgment or attachment lien even with respect to California personal property. For the time being, the only sure answer is to search California filings for existing judgment and attachment lien notices in cases where California personal property is part of the collateral package. A similar analysis may need to be done for any state with a statute like California’s Code of Civil Procedure §697.510.