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I feel really stupid and don't have anybody to ask, so I'm asking my fellow streeteasers. To all wisecracks: if you don't have the answer, please say nothing.
When a loan is secured by collateral (e.g. co-op shares) the lender files a UCC1 to let the world know it has a security interest in that collateral.
Another lender could lend against that same collateral, but its security interest is secondary. It has a shot at the collateral only after the first lender gets what it's owed.
The first lender could, however, agree to subordinate its security interest in favor of the second lender. I.e., switch positions. The first lender would file a UCC3 Subordination form to record the switch.
Really big thank you, NWT. This is the most eloquent (and elegant) explanation. Again, thank you.
This maybe a little more information than you want or need .... but here it goes...
UCC3 subordination is mixing up terms a little bit. A secured party (for example, a lender) files what is called a "UCC-1 Financing Statement" which, as NWT notes, puts the world on notice that it has a security interest/lien on a piece of property. The UCC-1 has basic information - name and address of debtor and secured party as well as a brief collateral description. Here is a what a blank one looks like: http://www.dos.ny.gov/forms/corporations/UCC1.pdf
UCC-1s are public information. For example, if Bank#1 lends you money to buy your coop located at 123 Main Street, it will file a UCC-1 with the Secretary of State of the State where you are located with the collateral description - for example, "100 shares in 123 Main Street Coop". Thus, anybody who searches for your name will find Bank#1's UCC-1 financing statement showing that it has a lien on your shares.
Now, for example, let's say you want to take a second mortgage with Bank#2. Bank#2 will search the Secretary of State records and find that Bank#1 has already lent you money. Bank#2 will not get its money back until Bank#1 has been paid in full so its interest is referred to as "subordinated".
A UCC-3 Financing Statement is filed for an amendment or termination of the lien. For example, if your address or the bank's address changes. Or, if you pay off your mortgage and the bank releases it's lien on your shares.
I'm simplifying things a little and using legal terms a slight bit different than the exact legal meaning so as to make the explanation understandable those not familiar with secured lending.
Right, Bank#2's interest is subordinated to Bank#1's interest by default, so no UCC3 Subordination is needed.
If Bank#1 agrees to subordinate its interest to Bank#2's, even though Bank#1's UCC1 was filed first, then the UCC3 Subordination form is used to record that reversal of the natural order of things.
I once witnessed two philosophers arguing a point, each of them standing up and dramatically delivering a sentence of about a hundred words and storming out of the room. The audience understood all the words but wouldn't be able to repeat the sentences, or even say what they were about, at the gun point...
Thanks again, NWT and downtown1234.
>To all wisecracks: if you don't have the answer, please say nothing.
You don't get to make the rules here.
Concerned, are you seasoning your personality so you can soon become like str33teasier, or are you senile, reflected by your several short useless posts on numerous threads?