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Report of The Colorado State Auditor 39 <br /> accomplished by filing a Uniform Commercial Code(UCC)-1 statement with <br /> the Secretary of State's Office. These filings are valid for a period of five <br /> years, at which time it is the creditor's responsibility to refile if it wishes to <br /> retain security interest in the collateral. <br /> The purpose of filing these documents is to provide public notice that a borrower has <br /> pledged its property as collateral to secure a loan. Once these documents are properly <br /> recorded,if additional creditors take an interest in the same property, their interests <br /> would be secondary to the State's. <br /> Timely filing of deeds of trust and UCC-1 statements -- both at contract execution <br /> and at various times during the life of the loan -- is important to ensure the State's <br /> interests are being fully protected. Without proper and timely filing of these <br /> documents, the State may have no recourse in the event that a borrower declares <br /> bankruptcy and/or defaults on its loan. We found that the Board does not have a <br /> perfected security interest in its collateral for loans totaling almost$12 million. The <br /> following discussion provides highlights of the specific problems we found in this <br /> area. <br /> The Board Is Not Filing Some Deeds of <br /> Trust as Required <br /> We reviewed a sample of 68 contracts executed between 1975 and 1997 to determine <br /> whether deeds of trust and UCC-1 statements were being filed as required. Deeds of <br /> trust are filed at two times during the loan process. Deeds may be filed at contract <br /> execution if the collateral for a loan warrants it (e.g., the collateral is already in <br /> existence). A second filing process may be necessary at project completion if, for <br /> instance, part of the project is used to secure the loan. <br /> We first reviewed documentation to determine whether all deeds were being filed as <br /> required,either at contract execution and/or at project completion. We found that the <br /> Board has no systematic process to ensure that deeds are filed as required. <br /> Specifically, in 19 cases (28 percent), we found that no deed had ever been filed, <br /> even though it was required. We then assessed whether the deeds that were filed as <br /> required were filed in a timely manner. We used the Board's standard of ten days <br /> from contract execution as a timely filing. We found that the vast majority of deeds <br /> were not being filed according to this standard,as shown in the following table. Late <br /> filing of a deed of trust could result in the State's interest in the collateral being <br /> relegated to a position lower than other creditors. <br /> I <br /> I <br />