What Is a Continuation Statement?

A continuation statement is an amendment attached to a UCC-1 financing statement. Continuation statements extend the lender's lien on the borrower's collateral past the original financing statement's expiration date. When a lender files a continuation statement, the continuation statement extends the UCC-1 financing statement by five years from the date of filing.

Continuation statements need to be filed with the appropriate authority, which varies based on the jurisdiction. However, generally they must be filed with the secretary of state.

Key Takeaways

  • Continuation statements are statements that extend the lender's lien on a borrower's collateral past the original expiration date.
  • They help lenders maintain a priority position to collect debt.
  • Continuations statements are also referred to as UCC-3 continuations statements because they refer to the Uniform Commercial Code (UCC), a set of regulations that govern commercial transactions.

Understanding Continuation Statement

Continuation statements must be filed in the six months prior to a UCC-1 financing statement's expiration. Statements filed outside of this window are refused, whether they're filed too early or too late. Thus, lenders must keep track of when their financing statements expire, in order to avoid missing their opportunity to extend them.

When a lender files a continuations statement, they need to identify the initial UCC-1 financing statement that it amends. If necessary, a lender files additional continuation statements to extend the financing statement for additional periods of five years.

Some people call continuation statements UCC-3 continuations statements, because they refer to the Uniform Commercial Code (UCC), which is a set of regulations that govern commercial transactions. This code tries to simplify and clarify the laws around commercial transactions and make them consistent across jurisdictions. The UCC states that a lender's lien on a borrower's collateral ends after a period of five years. However, if the loan in question extends for longer than five years, the lender generally files a continuation statement for their own protection.

Why File a Continuation Statement?

Continuation statements protect lenders by helping them to maintain a priority position in the event that they need to collect a debt. Often, borrowers default on multiple debts at once, due to financial hardship or simply because they've taken on too many loans. When this happens, multiple creditors often attempt to collect on those debts at once.

If a lender has not filed a continuation statement for a specific financing statement, that statement ceases to be effective. Once it is no longer effective, other lenders who have filed financing statements gain priority status when seeking to collect on a debt.

Some transactions with financing statements do not require continuation statements in order to last for longer than five years. For example, a financing statement filed in connection with a public-finance transaction or a manufactured home sometimes lasts for 30 years.

Example of Continuation Statement

Bank A extends a $100,000 loan to a farmer with his tractor as collateral on Jan. 1, 2015. While the institution files a three-year financing statement, it forgets to file a continuation statement. Three years later, the farmer, who still has not paid back his loan in full, puts up the tractor as collateral with Bank B. Bank A files a continuation statement on Jan. 31, 2018, after the lapsing of its financing statement, and claiming the tractor as collateral. However, the court decides that Bank B gets precedence over Bank A in claiming the tractor as collateral.