UCC ARTICLE 9 FOR DIRT LAWYERS – REVISITED
Charles D. Calvin
Faegre Baker Daniels LLP
1700 Lincoln Street
Suite 3200
Denver, Colorado 80203
UCC ARTICLE 9 FOR DIRT LAWYERS – REVISITED
Introduction
Most lawyers recall from a bar refresher course if not from law school that there
is one body of law that deals with liens on real property and a separate body of law for
security interests in personal property. We go to different books for statutory provisions –
Title 38 for real property and Title 4 for personal property – and the terminology is
different. When real estate is involved, we think in terms of liens, mortgages, deeds of
trust and recording. When we’re dealing with personal property, we speak of security
interests, security agreements, financing statements and filing.
Very few real estate lawyers, though, can compartmentalize their practices so
completely that it is safe for them to ignore the arcane (to some of them) body of law that
deals with security interests in personal property. Whatever common law existed in this
area has been displaced almost completely by statute, and specifically by Article 9 of the
Uniform Commercial Code. Article 9 was substantially rewritten in the late 1990s, and
was modified again, less extensively, in 2010.
The most obvious points of intersection between Article 9 and real estate lien law
relate to fixture filings and security interests in as-extracted collateral or in timber to be
cut, because documents to perfect security interests of these types are properly recorded
in the real property records. We will discuss these types of security interests. We will
also, however, discuss security interests in some other types of collateral that often show
up in real estate financing transactions, including security interests in deposit accounts, in
letter-of-credit rights and in supporting obligations. A lien securing a right to payment
is analogous to a supporting obligation but is not covered by the latter term.
Review of Terminology
First, let us review some basic concepts and vocabulary used throughout
Article 9:

Scope – Article 9 applies to “[a] transaction, regardless of its form, that
creates a security interest in personal property or fixtures by contract,”
C.R.S. § 4-9-109(a)(1), as well as to “[a] sale of . . . promissory notes,”
C.R.S. § 4-9-109(a)(3). [Note that this description of scope is significantly
truncated.] Article 9 does not apply to “[t]he creation or transfer of an
interest in or lien on real property, including a lease or rents thereunder,
except to the extent that provision is made for [security interests in timber
to be cut, supporting obligations secured by real property, security
interests in fixtures, fixture filings, and security agreements encumbering
both real and personal property]. C.R.S. § 4-9-109(d)(11). On the other
hand, the application of Article 9 “to a security interest in a secured
obligation is not affected by the fact that the obligation itself is secured by
a transaction or interest [for example, by a lien on real property] to which
this article does not apply.” C.R.S. § 4-9-109(b).

The term “[s]ecurity interest means an interest in personal property or
fixtures that secures payment or performance of an obligation. The term
also includes any interest of a . . . buyer of . . . a payment intangible, or a
promissory note in a transaction that is subject to” Article 9. C.R.S.
§ 4-1-201(a)(35). [Note that this definition is in Article 1 of the Uniform
Commercial Code, not in Article 9, because the term is used in several
articles.

The term “[s]ecurity agreement means an agreement that creates or
provides for a security interest.” C.R.S. § 4-9-102(a)(76).

The property that is subject to a security interest is referred to as
“collateral”, but the term collateral includes “proceeds to which a security
interest attaches” and “payment intangibles, and promissory notes that
have been sold . . . .” C.R.S. § 4-9-102(a)(12).

The owner of collateral – who may or may not be affirmatively obligated
for payment or performance – is the “debtor”, but the term “debtor” also
includes a seller of payment intangibles or promissory notes. C.R.S.
§ 4-9-102(a)(28).

The other key party, the beneficiary of a security interest, is the “secured
party”. Consistent with the definitions of “security interest” and “debtor”,
the term “secured party” includes a “person to which . . . payment
intangibles, or promissory notes have been sold . . . .” C.R.S.
§ 4-9-102(a)(75).

If a security interest is properly characterized as a purchase money
security interest, a number of special rules operate to the advantage of the
secured party. Both tangible and intangible property can be subject to a
purchase money security interest, but the simplest kind of purchase money
security interest is a security interest that secures an obligation in favor of
the seller of goods to pay all or part of the purchase price for those goods,
or an obligation in favor of a lender who supplied funds to finance the
purchase of the goods, if the funds were in fact used for that purpose. See
C.R.S. § 4-9-103.

Most security interests are perfected in most situations by the filing of a
financing statement in the appropriate filing office. A financing statement
must contain the information specified in C.R.S. § 4-9-502(a) and (b).
Those subsections set forth only a partial list, however, because a
financing statement that is rejected by the filing officer for any of the
reasons listed in C.R.S. § 4-9-516(b) is not deemed to have been filed.
Note that the 2010 amendments (adopted in Colorado in 2013) repealed
2
C.R.S. § 4-9-516(b)(5)(C), so that the form and organizational
identification number of an organizational debtor need not be stated in a
financing statement. Moreover, a filing officer is required to reject any
financing statement that fails to comply with the requirements of
§ 4-9-516(b). See C.R.S. § 4-9-520(a). On the other hand, some
requirements are more equal than others: if a filing officer accepts a
financing statement that was required to be rejected, but that contains the
basic information called for in C.R.S. § 4-9-502(a) and (b), the filing is
still effective for most purposes. C.R.S. § 4-9-520(c).

The effects of perfection or nonperfection are beyond the scope of this
outline, but it is worth noting that Revised Article 9, unlike prior law,
provides for two levels of perfection in some circumstances. In general,
perfection serves to protect a given security interest against competing
claims by other real or hypothetical creditors whose interests are
unperfected, are subordinate as a matter of law, or were perfected after the
perfection of the security interest in question. The hypothetical creditor of
greatest concern is a future trustee in bankruptcy of the debtor, who, under
§ 544 of the Bankruptcy Code, has (among other powers) all of the
avoidance rights and powers of a creditor having a judicial lien on all of
the debtor’s assets as of the date of the bankruptcy filing. Any level of
perfection that failed to protect a security interest from avoidance by a
bankruptcy trustee would be of little value. As we will see later, however,
in some situations Article 9 permits a security interest to be perfected
against the rights and powers of a bankruptcy trustee, while remaining
vulnerable to the competing claims of another non-hypothetical creditor
whose interest was perfected in a different manner.
Fixture Filings – Definitions
A fixture filing is “the filing of a financing statement covering goods that are or
are to become fixtures and satisfying section 4-9-502 (a) and (b). The term includes the
filing of a financing statement covering goods of a transmitting utility which are or are to
become fixtures [emphasis added].” C.R.S. § 4-9-102(a)(40). The term “goods” is
defined to mean “all things that are movable when a security interest attaches. The term
includes (i) fixtures, (ii) standing timber that is to be cut and removed under a
conveyance or contract for sale, (iii) the unborn young of animals, (iv) crops grown,
growing, or to be grown, even if the crops are produced on trees, vines, or bushes, and (v)
manufactured homes.” C.R.S. § 4-9-102(a)(44). “Fixtures”, in turn, means “goods that
have become so related to particular real property that an interest in them arises under
real property law.” C.R.S. § 4-9-102(a)(41). However, Article 9 does not provide for the
creation of a security interest in “ordinary building materials incorporated into an
improvement on land.” C.R.S. § 4-9-334(a).
Cases decided over a period of more than a century have emphasized different
aspects of the criteria that determine whether a given object is part of real property or
3
retains its original character as personal property. A 1996 Court of Appeals case contains
what appears to be a fair summary of the tests described in prior Colorado cases:
The general tests for determining whether an object is a fixture are:
(1) annexation to the real property; (2) adaptation to the use to which the
real property is devoted; and (3) intention that the object become a
permanent accession to the real property or a permanent structure on the
real property.
Reynolds v. State Board for Community Colleges and Occupational Education, 937 P.2d
774, 778 (Colo. App. 1996).
Fixture Filings – Perfection
To be a fixture filing, then, a financing statement must cover one or more
movable items of tangible personal property that have been, or are intended to be,
permanently annexed to real property and adapted to be used for the purpose for which
the real property is used. The financing statement must contain the information specified
in C.R.S. § 4-9-502 and satisfy the requirements of C.R.S. § 4-9-516(b). Combining these
provisions into a single list, a fixture filing must contain or show:

The name of each debtor (which, if the debtor is an individual, must
include the individual’s last name);

Each debtor’s mailing address;

With respect to each debtor, an indication of whether that debtor is an
individual or is an organization;

The name of each secured party;

The mailing address of each secured party;

An “indication” of the collateral, including a statement that the collateral
consists of or includes fixtures;

An “indication” that the financing statement is to be filed for record in the
real property records;

A description of the real property to which the fixtures have been or are to
be annexed, sufficient to describe the real property for mortgage law
purposes; and

If the debtor does not have a record interest in that real property, the name
of the record owner of the real property.
4
If the secured party holds a mortgage on the real property on which the fixtures
are or are to be located, the mortgage itself may serve as a fixture filing, but only if
(a) the mortgage “indicates” the goods it covers, (b) those goods are or are to become
fixtures on the real property encumbered by the mortgage, (c) the mortgage contains all
of the information that would have to be contained in a financing statement filed as a
fixture filing, although the mortgage need not include an indication that it is to be filed in
the real property records, and (d) the mortgage is in fact recorded in the appropriate real
property records. See C.R.S. § 4-9-502(c). In addition, of course, if there is no separate
security agreement, the mortgage must also contain any provisions that would otherwise
be contained in a separate agreement. See C.R.S. § 4-9-203(b).
Note that a fixture filing in the real property records, whether in the form of a
financing statement or in the form of a mortgage, serves to perfect only a security interest
in goods that are or are to become fixtures on the specific property described in the
fixture filing. If the secured obligations are secured by other types of collateral, or by
fixtures or potential fixtures in another location, then it will be essential to determine
what other filings or actions are necessary to perfect the secured party’s interests in the
rest of the collateral.
Given the choice between filing a financing statement as a fixture filing, or
relying on the recording of a mortgage to serve the same purpose, which is better? Using
the mortgage has one distinct advantage, in that it does not need to be continued every
five years, while a financing statement does. See C.R.S. § 4-9-515(a), (g). [This
advantage does not hold true for mortgages that serve to perfect security interests in
“as extracted collateral” or in timber to be cut.]
Fixture Filings – Priority in Relation to Other Interests
The rules governing the priority of an Article 9 security interest in goods, relative
to other interests in the real property to which the goods have been or are to be affixed,
are set forth in C.R.S. § 4-9-334. These can be summarized as follows:

Purchase money security interest in fixtures – If the security interest
perfected by a fixture filing is a purchase money security interest in the
relevant goods, then the security interest will have priority over the rights
of an owner or encumbrancer of the affected real property if (i) the debtor
has a record interest in the real property or is in possession of the real
property, and (ii) the fixture filing is filed before the goods become
fixtures or within 20 days thereafter. C.R.S. § 4-9-334(d).

Priority vs. judgment liens – A security interest in goods covered by a
fixture filing has priority over a judgment lien on the affected real
property, if the judgment lien is perfected after the fixture filing was made.
C.R.S. § 4-9-334(e)(3).

Priority as to certain movable items – If the fixture filing is made before
the goods become fixtures, a non-purchase money security interest has
5
priority over pre-existing rights of an owner or encumbrancer of the
affected real property in the case of (i) factory or office machines,
(ii) other equipment that is not used primarily in the operation of the real
property, or (iii) replacements of domestic appliances that are consumer
goods, provided in each case that the equipment is readily removable.
C.R.S. § 4-9-334(e)(2).

Priority in relation to construction mortgages – Construction mortgages
present a special case. A security interest perfected by a fixture filing is
subordinate to a mortgage that discloses that its purpose is to finance (or
refinance) construction of an improvement on the affected real property if
the mortgage was recorded before the fixture filing, except with respect to
movable items as discussed above. C.R.S. § 4-9-334(h).

Priority dependent on sequence of filing – In most cases, a non-purchase
money security interest has priority over the rights of an owner or
encumbrancer of the affected real property only if (i) the debtor has a
record interest in the real property or is in possession of the real property,
and (ii) the fixture filing is filed before the interest of the owner or
encumbrancer is of record. C.R.S. § 4-9-334(e)(1).

Default rule – If none of the other rules apply, the security interest in
fixtures is subordinate to the rights of an owner or encumbrancer of the
affected real property. C.R.S. § 4-9-334(c).
As-Extracted Collateral and Timber to be Cut
One would think from the language alone that “as-extracted collateral” is tangible
personal property that either has been or is expected to be extracted from real property.
The Article 9 definition includes this concept but goes beyond it. The official definition
reads as follows:
“As-extracted collateral” means:
(A)
Oil, gas, minerals, or other substances of value that may be
extracted from the earth that are subject to a security interest that:
(i)
Is created by a debtor having an interest in the minerals or
such other substances before extraction; and
(ii)
Attaches to the minerals or such other substances as
extracted; or
(B)
Accounts arising out of the sale at the wellhead or minehead of oil,
gas, minerals, or other substances of value that may be extracted from the earth in
which the debtor had an interest before extraction.
6
C.R.S. § 4-9-102(a)(6). “As-extracted collateral,” then, includes not only minerals that
may be extracted but also “accounts” – which are simply a right to receive payment – that
may arise from the eventual sale of such minerals.
“Timber to be cut” is not defined in Article 9. The common meanings of the
words, however, suggest that the phrase refers to trees, useful as timber, that are still
growing at the time the security interest attaches, but are expected to be severed from the
land at a time while the security interest remains in place with respect to the timber. This
is confirmed by part of the definition of “goods:”
“Goods” means all things that are movable when a security interest
attaches. The term includes . . . (ii) standing timber that is to be cut and
removed under a conveyance or contract for sale. . . .
C.R.S. § 4-9-102(a)(44).
As-Extracted Collateral and Timber to be Cut – Perfection
With one significant exception, the requirements for a financing statement that is
to perfect a security interest in as-extracted collateral or timber to be cut, and perfection
procedures generally, are the same as the corresponding rules for fixture filings, and that
discussion will not be repeated here. The exception relates to C.R.S. § 4-9-515(g), which
provides that if a fixture filing is incorporated into a mortgage encumbering the
underlying real property, no continuation statements need be filed so long as the
mortgage remains valid. Due to oversight or otherwise, that rule does not apply to the
perfection of security interests in as-extracted collateral or timber to be cut. A mortgage
on the underlying real estate can, with proper additions, serve in place of an initial
financing statement, but to maintain perfection a continuation statement must be filed
every five years in accordance with C.R.S. § 4-9-515(a). For this reason, depending on
the secured party’s tickler system, it may be appropriate to file a separate financing
statement at the inception, if that is more likely to result in continuation statements being
filed on a timely basis.
It is important to note that once collateral consisting of minerals has been
extracted or timber has been cut, the collateral becomes “goods,” and the proper place to
file a financing statement may shift to the debtor’s location. Because the definition of
“as-extracted collateral” includes accounts arising from the sale of minerals immediately
upon extraction, a filing in the real property records can continue the perfection of a
security interest in such accounts. There is no corresponding protection for accounts
arising from the sale of timber immediately after cutting. For this reason, a secured party
should consider filing separate financing statements covering goods and accounts in the
filing office(s) dictated by the debtor’s location, determined in accordance with C.R.S.
§ 4-9-307 and C.R.S. § 4-9-501 or its counterpart in another state.
7
As-Extracted Collateral and Timber to be Cut – Priority in Relation to Other Interests
In contrast to the elaborate set of rules and exceptions to rules that define the
priority of a security interest in fixtures in relation to other interests, no special rules
govern the relatives priorities of securities interests in as-extracted collateral or timber to
be cut. As a consequence, the relative priority of such security interests is governed by
C.R.S. § 4-9-317, which in turn directs attention to C.R.S. § 4-9-322. It is only a slight
oversimplification to say that priority depends on the sequence of filing or recording,
except that purchase money security interests may have priority over other, previouslyperfected security interests. Nowhere, however, does Article 9 expressly address the
relative priorities of a security interest in as-extracted collateral or timber to be cut, on
one hand, and a mortgage on the affected real property, on the other hand.
Letter-of-Credit Rights
Letters of credit have no inherent relation to real property transactions, but they
are often used in lieu of cash deposits or other forms of security for real estate
transactions, including in lieu of security deposits under real property leases, earnest
money deposits under purchase agreements or escrows relating to unsatisfied conditions
under a variety of contracts. For this reason, we include a brief summary of how “letterof-credit rights” are treated under Article 9.
A “letter-of-credit right” is “a right to payment or performance under a letter of
credit, whether or not the beneficiary has demanded or is at the time entitled to demand
payment or performance.” C.R.S. § 4-9-102(a)(51). Under prior law, it might have been
a type of account or, more likely, a general intangible, but under Revised Article 9 it is a
separate type of collateral and is expressly excluded from other, potentially related
definitions.
Filing of a financing statement is not required to perfect a security interest in a
letter-of-credit right, C.R.S. § 4-9-310(b)(8), and indeed is ineffective. With a limited
exception, a security interest in a letter-of-credit right may be perfected only by
“control.” C.R.S. § 4-9-314(a). “Control” is a variable concept relating to perfection of
security interests in several different kinds of intangible property, including letter of
credit rights, investment property, deposit accounts and electronic chattel paper, but the
meaning of “control” is defined separately for each type of intangible collateral.
With respect to letter-of-credit rights, “control” means that “the issuer [of the
letter of credit] has consented to an assignment of proceeds of the letter of credit under
. . . applicable law or practice.” C.R.S. § 4-9-107. This consent may (rarely) be set forth
in the letter of credit itself, or it may be set forth in a separate writing signed by the issuer
at the time the security interest is created.
A letter-of-credit right is a species of “supporting obligation,” discussed below.
As with other supporting obligations (a guaranty is the most common example), the
creation and perfection of a security interest in the supported obligation automatically
creates and perfects a security interest in the supporting obligation. However, the issuer
8
of a letter of credit is not obligated to pay anyone other than the beneficiary of the letter
of credit or an assignee to whom the issuer has consented to be obligated. For a more
detailed discussion of this distinction, see Official Comment 5 to C.R.S. § 4-9-107.
Deposit Accounts
A “deposit account” is a “demand, time, savings, passbook, or similar account
maintained with a bank. The term does not include investment property or accounts
evidenced by an instrument [as, for example, a negotiable certificate of deposit].” C.R.S.
§ 4-9-102(a)(29). Deposit accounts are not directly related to real property, but rents and
other revenues produced by real property are typically placed into a deposit account, so
deposit accounts are a logical type of additional collateral for a loan secured primarily by
real property.
A security interest in a deposit account as direct collateral (as distinguished from
proceeds of other collateral) may be perfected only by “control.” As noted earlier,
“control” is a variable concept relating to perfection of security interests in several
different kinds of intangible property, including letter of credit rights, investment
property, deposit accounts and electronic chattel paper, but the meaning of “control” is
defined separately for each type of intangible collateral.
With respect to deposit accounts, the requirements for “control” are set forth in
C.R.S. § 4-9-104, which provides that:
(a)
A secured party has control of a deposit account if:
(1)
The secured party is the bank with which the
deposit account is maintained;
(2)
The debtor, secured party, and bank have agreed in
an authenticated record that the bank will comply with
instructions originated by the secured party directing
disposition of the funds in the deposit account without
further consent by the debtor; or
(3)
The secured party becomes the bank's customer
with respect to the deposit account.
(b)
A secured party that has satisfied subsection (a) of this section has
control, even if the debtor retains the right to direct the disposition of
funds from the deposit account.
To paraphrase, a secured party has control over a deposit account if (i) the secured party
is also the bank at which the deposit account is established, in which case no further
control agreement is necessary, or (ii) the debtor, the secured party and the bank at which
the deposit account is established have entered into a three-party agreement authorizing
the secured party to direct the disposition of money in the account, or (iii) the deposit
9
account is set up in the secured party’s name, i.e., with the secured party as owner of the
deposit account. The fact that the debtor may be able to withdraw funds from the account
until the secured party directs otherwise does not defeat control.
Supporting Obligations
As noted under the discussion of letter-of-credit rights, Article 9 recognizes the
existing of “supporting obligations.” A “supporting obligation” is “a letter-of-credit right
or secondary obligation that supports the payment or performance of an account, chattel
paper, a document, a general intangible, an instrument, or investment property.” C.R.S.
§ 4-9-102(a)(80). The most common type of supporting obligation is a guaranty of
payment or performance, issued with respect to a note, contract or other obligation.
Article 9 does not specify a method of perfecting a security interest in a
supporting obligation because it is deemed to be an attribute of, and inseparable from the
supported obligation. Thus, C.R.S. § 4-9-203(f) provides that “[t]he attachment of a
security interest in collateral . . . is also attachment of a security interest in a supporting
obligation for the collateral.” Official Comment 8 to this section elaborates as follows:
Under subsection (f), a security interest in a “supporting obligation”
(defined in Section 9-102) automatically follows from a security interest in
the underlying, supported collateral. This result was implicit under former
Article 9. Implicit in subsection (f) is the principle that the secured party’s
interest in a supporting obligation extends to the supporting obligation
only to the extent that it supports the collateral in which the secured party
has a security interest. Complex issues may arise, however, if a supporting
obligation supports many separate obligations of a particular account
debtor and if the supported obligations are separately assigned as security
to several secured parties. The problems may be exacerbated if a
supporting obligation is limited to an aggregate amount that is less than
the aggregate amount of the obligations it supports. This Article does not
contain provisions dealing with competing claims to a limited supporting
obligation. As under former Article 9, the law of suretyship and the
agreements of the parties will control.
The automatic perfection principle is confirmed by C.R.S. § 4-9-308(d), which provides
that “[p]erfection of a security interest in collateral also perfects a security interest in a
supporting obligation for the collateral.”
In practical terms, this means that if a secured party properly perfects a security
interest in a note or other instrument, either by possession or by filing, or in an account or
general intangible by filing, the secured party need not do anything further to create or
perfect a security interest in a third-party guaranty of the underlying obligation.
10
Liens Securing a Right to Payment
Closely related to the concept of a supporting obligation is the concept of a “lien
securing a right to payment.” In fact, there is no separate definition of the latter term, but
the two concepts follow in tandem when used in C.R.S. § 4-9-203(f) and (g) and in
C.R.S. § 4-9-308(d) and (e).
As in the case of a supporting obligation, a secured party’s perfection of a security
interest in collateral that is itself secured by a security interest, mortgage or other lien on
other property automatically creates and perfects in favor of the secured party a security
interest in the underlying security interest, mortgage or other lien. Official Comment 5 to
C.R.S. § 4-9-308 illustrates how this works:
Subsection (e) . . . deals with the situation in which a security interest is
created in a right to payment that is secured by a security interest,
mortgage, or other lien.
Example 3: Owner gives to Mortgagee a mortgage on Blackacre to secure
a loan. Owner's obligation to pay is evidenced by a promissory note. In
need of working capital, Mortgagee borrows from Financer and creates a
security interest in the note in favor of Financer. Section 9-203(g) adopts
the traditional view that the mortgage follows the note; i.e., the transferee
of the note acquires the mortgage, as well. This subsection adopts a similar
principle: perfection of a security interest in the right to payment
constitutes perfection of a security interest in the mortgage securing it.
An important consequence of the rules in Section 9-203(g) and
subsection (e) is that, by acquiring a perfected security interest in a
mortgage (or other secured) note, the secured party acquires a security
interest in the mortgage (or other lien) that is senior to the rights of a
person who becomes a lien creditor of the mortgagee (Article 9 debtor).
See Section 9-317(a)(2). This result helps prevent the separation of the
mortgage (or other lien) from the note.
Depending on the terms of the security agreement, the secured party will typically
be entitled to enforce payment of a pledged note. If the note is secured by a mortgage, the
secured party will, based on the rules just discussed, also be entitled to enforce the
mortgage. The mortgaged property represents proceeds of the note, in which the secured
party has only a security interest, and this status does not change merely because the
secured party exercises the rights of the pledgor of the note and forecloses the mortgage.
As a result, if the secured party should acquire title to the mortgaged property, it will do
so as a secured party and not as an absolute owner, although this status may or may not
be apparent from the real estate records.
To avoid the risk of having to bring a separate judicial foreclosure action, the
secured party should not foreclose the mortgage in its own name at a time when the
obligation secured by the pledge of the note and mortgage is not itself in default. If a
11
foreclosure of the mortgage is required, it should be conducted in the pledgor’s name but
with appropriate controls to be sure the value of the underlying collateral is realized for
the benefit of the secured party. If the obligation secured by the pledge of the note and
mortgage is in default, that security interest should be foreclosed first so that the secured
party (or a third party purchaser at an Article 9 foreclosure sale) becomes the absolute
owner of the note and mortgage. The mortgage can then be foreclosed by the new owner
of the note and mortgage, who will become the absolute owner of the mortgaged property
or the cash proceeds of the mortgage foreclosure sale.
12