Lender Protections

Fabrica's trust structure includes legal mechanisms that provide lenders with certainty and security when financing property tokens. These protections ensure that lenders can perfect their security interest and recover collateral in the event of default.

UCC Article 8

The Fabrica Trust agreement includes an opt-in under Article 8 of the Uniform Commercial Code (UCC). This provision:

Perfects Security Interest: Allows lenders to establish a valid security interest in the property token without filing or recording documents
Priority Protection: Provides certainty about the lender's priority claim to the collateral
Simplified Recovery: In the event of default, lenders can take possession of the collateral without additional legal filings

UCC Article 8 governs investment securities and provides a well-established framework for secured transactions. By opting into Article 8, the Fabrica Trust ensures that property tokens receive the same legal treatment as traditional securities when used as collateral.

UCC Article 12

The current version of the Fabrica Trust also incorporates UCC Article 12, which specifically addresses controllable electronic records. This newer provision:

Recognizes Digital Assets: Treats the property token as a "controllable electronic record" under the law
Control-Based Perfection: Establishes that control of the token (possession in a wallet or smart contract) constitutes a valid security interest
Modern Framework: Provides legal clarity for blockchain-based assets that didn't exist when earlier UCC articles were drafted

UCC Article 12 was adopted to address the unique characteristics of digital assets and provides an additional layer of legal recognition for property tokens used as collateral.

How Protections Work in Practice

When a property token is used as collateral:

Stage	Protection
Loan Initiation	Token transfers to lending protocol's smart contract, establishing control
During Loan	Lender's security interest is perfected through control of the token
On Repayment	Token returns to borrower; lender's interest is released
On Default	Lender claims token or receives auction proceeds with priority

The combination of UCC Article 8 and Article 12 means lenders don't need to file UCC financing statements or record liens at the county level. Control of the token itself establishes the security interest.

Collateral Recovery

Upon borrower default, the lender's path to recovery depends on the lending protocol:

NFTfi (Peer-to-Peer):

Lender claims the property token directly
Lender becomes the new beneficial owner of the trust and property
Lender can sell, hold, or off-ramp the property

MetaStreet (Pool-Based):

Property token is auctioned
Auction proceeds repay capital providers by tranche seniority
Any surplus returns to the original borrower

In both cases, the lender's security interest is protected by the trust's UCC provisions.

Borrower Rights During Loan

While the token serves as collateral, the borrower retains:

Beneficial Ownership: The borrower remains the owner of the property
Right to Use: Full access to and use of the property
Property Rights: All rights under the Fabrica Trust except the ability to transfer

The lending protocol holds the token as security, but the borrower is the owner in every practical sense until default occurs.

Trust Evolution

The Fabrica Trust has evolved to incorporate stronger lender protections:

Version	Protection
Earlier Versions	UCC Article 8 opt-in for collateral security
Current Version	UCC Article 8 + Article 12 for comprehensive digital asset protection

The current trust agreement is available at github.com/fabrica-land/fabrica-connectors.

Additional Safeguards

Beyond UCC provisions, lenders benefit from:

Onchain Transparency: Ownership and loan status are verifiable on the blockchain
County Records: The underlying property ownership is recorded at the county level
Confidence Scoring: Validators continuously monitor property status
Legal Compliance: Fabrica has worked with regulators and law firms to ensure platform compliance

While Fabrica has designed robust protections, the trust model has never been tested in court. Lenders should conduct appropriate due diligence and consider consulting legal counsel for significant lending activities.