Old Wachovia/Washington Mutual Loan Customers – Read This

Now that mammoth bank Wachovia has begun merging its operations with Wells Fargo, and Washington Mutual has began folding operations into JP Morgan Chase, there will many records lost, misplaced, or archived and difficult to find. If you are a former loan customer of one of these banks or any other bank that has been bought or merged into another, you should take several steps to make sure there are no old, paid off loans in which the UCC-1 Financing Statements have not been terminated.

When a lender loans money to a business (and sometimes an individual), they file a UCC-1 Financing Statement which lets the world know they have rights to collateral specified in the financing statement. Unless something happens to the status of the filing (i.e. termination, assignment, etc), the UCC-1 stays in place for ten years. Many times a business loan is paid off before the ten year expiration date of the loan. Most banks have automatic processes to terminate the UCC filing once the loan has been paid off. Some do not. In the case of banks that have merged during or after the loan has been paid off, the recordkeeping of the UCCs sometimes fails.

If your business has a current loan with a bank that has merged, the general process is for the UCC-1 filing to be transferred to the acquiring bank, thus indicating the interest the new bank has in the collateral. The acquiring bank seldom makes a mistake in telling the world of its acquired interest in the loan.

For many customers though it is the loans that were made and paid off close to the time their bank merged with another that can cause problems. In these cases, the original note has been paid, but the UCC filing has not been terminated in the confusion of the merger.

It is imperative for the business who originally borrowed the money which was paid off to check their state’s secretary of state’s office to insure the original loan UCC was terminated. Businesses should check annually because like credit reports, every now and then there are UCC-1s that sneak into the records when there is no money owed.

I have a client that I have been helping with various financing needs since about 1996. The company, located in San Antonio Texas borrowed a substantial amount of money from a community bank in 1998 and 2000. Both loans were paid off in 2000, the same year the lending bank was aquired by Southtrust Bank. Within a year, Southtrust Bank was acquired by Wachovia. My client’s loans that had an existing balance had the UCCs properly assigned to each acquiring bank, but there were two loans that had been paid off as the first merger was happening. The UCCs were never terminated on these loans. In 2007 my client needed to borrow some money again. The two UCCs that should have been terminated where still active with the original bank. All the records of the original bank were buried somewhere in Wachovia land. A new lender would not make any loan until the two UCCs were terminated. Customer service at Wachovia didn’t know what to and wanted to make it my client’s responsibility to show them that the loans were paid. My client’s records were no longer available either. The entire process to clear this simple matter up took 5 months. We finally had to appeal to the Wachovia city president for help. Once we were able to escalate our issues to the Wachovia city President, he was able to help us get the “orphan” UCCs terminated.

There will be many similar cases with both Washington Mutual and Wachovia because they were such large small business lenders. Making maters more complex, Wachovia made a substantial number of acquisitions during the last 5 years, so loan customers of the acquired banks are also affected. If you have an old loan with one of these two banks (or banks they acquired) that has been paid off, make sure the UCC filing has been terminated. If not, there are still Wachovia and Washington Mutual customer service people who can take care of this. Once the records are completely merged with the acquiring bank, the process of getting UCC terminations from old loans will become immeasurably much harder.

It is very easy to determine what UCCs are filed against your business. Simply go to the Secretary of State's website for the state or states you do business in. Nearly all states have an online search option. Some are free, while others cost a nominal fee. For example. it cost $1.00 to do a search of UCC records in Texas where I do most of my searches. A search can be done in the matter of minutes.

Sam Thacker is a partner in Austin Texas based Business Finance Solutions.

You may contact Sam directly at: sam@lesliethacker.com

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EXTRA: If you have questions for Sam regarding business financing, the credit market, and similar issues, please send an e-mail. Your questions will be recorded and Sam will answer the best ones in his podcast show.