Last month New Jersey enacted Assembly Bill 2481, to address the issue of fraudulent or bogus financing statements being filed in the UCC records. These baseless claims have become a persistent problem for filing offices in several states and the individuals impacted. Anti-government groups, prison inmates, and others have used fraudulent UCC filings to harass and intimidate public officials and institutions. And while these filings are unenforceable and have no legal effect, they often cause serious financial difficulties for victims.
Efforts by states to subvert fraudulent UCC filings date back to 2004, when the National Association of Secretaries of State (NASS) and the International Association of Commercial Administrators (IACA) developed recommendations to help state filing offices promulgate a more uniform, nationwide response to the problem.
CT Lien Solutions has been watching and tracking these efforts since their inception and each state’s various approaches have targeted specific behaviors that are usually intended to defraud or harass. Granted, while each state has simultaneously attempted to minimize the impact on legitimate filers and their UCC portfolio, efforts such as these designed to stop fraudulent activity will always have some impact on those conducting business legitimately.
So, as we look at the changes to New Jersey’s RA9, we have to remember the state’s legislative intent – to reduce burdens faced by victims of fraudulent filers by granting the filing office greater authority to refuse to accept bogus filings.
What the New Language in New Jersey’s Article 9 Says
Some of our readers have heard that New Jersey’s RA9 changes will cause them a lot of headaches, but they haven’t seen the language. Here are the parts of the bill that seem be causing the most concern. The text in red is what was amended by A 2481:
12A: 9-502. Contents of Financing Statement; Record of Mortgage as Financing Statement; Time of Filing Financing Statement.
(a) Sufficiency of financing statement. Subject to subsection (b), a financing statement is sufficient only if it: (1) provides the name of the debtor; (2) provides the name of the secured party or a representative of the secured party, which discloses the identity of the secured party or representative; and (3) indicates the collateral covered by the financing statement and that the collateral is within the scope of this chapter, pursuant to 12A:9-102 and 12A:9-109.
Remembering the intent of the legislation, what do these changes mean?
First, if the name provided for the secured party (or its representative) does not disclose the identity of the secured party or its representative – in other words, allow that entity to be correctly identified – then it’s an alias, false name or nom de plume, and may therefore be considered fraudulent and cause the filing to be considered insufficient.
Furthermore, while under 9-503 trade names are not a “correct” name for use as a debtor name on a financing statement, A 2481 does not change the permission to list a representative of the SP in lieu of the actual secured party on a UCC-1.
Two, the additional wording added to the third element of sufficiency – collateral – is simply reinforcing the point that a UCC-1 is ineffective if it covers collateral outside the scope of RA9. Would any NJ court ever throw out a legitimate UCC filing in a proceeding for failure to include such a statement? However, if a filer is concerned about this new language, a simple statement indicating that the collateral falls within RA9 should be sufficient.
Thirdly, the bill does not give any new rejection authority to the New Jersey Department of Revenue in relation to enforcing these changes.
Keep in mind that reasonable and informed UCC practitioners and filing system users can argue about how to interpret specific language in New Jersey’s A 2481. However, the sufficiency of a filing is not determined in a vacuum or a dark windowless cave with only a copy of the filing and the applicable statute: it generally happens in a court of law in a public proceeding where a magistrate considers many factors – especially the intent of the law.
Click here for the full text of New Jersey Assembly Bill 2481.
Please contact your CT Lien Solutions service representative if you have any questions.