Volume 5, Issue 4 (Fall 2009)
Local Filing Issues
Debtor Would -Were He Not Debtor Called - Maintain that Dear Perfection
BY JENNIFER LIPTAN
VICE PRESIDENT, MANAGER, SPECIALTY SERVICES
In the UCC Division's March, 2007 newsletter, we featured articles focused on the sufficiency of the Debtor's name when filing financing statements. Today, we re-visit this issue and focus on the debate surrounding the naming standards for an individual debtor including some of the non-uniform legislation that has been born in an attempt to bring clarity in certain jurisdictions.
Determining an individual's name has always been difficult, even before Revised Article 9 went into effect in 2001. §9-503 does little to guide searchers and filers, other than to declare that the financing statement is sufficient "... only if it provides the individual or organizational name of the debtor." Without a clear definition of 'individual name,' however, ambiguity in the statute has led to an outpouring of suggested proposals as to how this problem might be resolved.
The Abstinence Approach, or, simply not lending to an individual borrower, was quickly rejected, however, a proposal that looks like it might fly investigates the logistics of implanting UCC identifier chips into the individual at birth. More reasonable, perhaps, was the suggestion that the state offices maintain confidential, unique individual identifiers (social security numbers) so that searchers could search by social, but not retrieve the confidential numbers of the similarly-named individuals that would have been revealed on a simple name search. In lieu of a majority solution, however, a handful of jurisdictions have amended their statutes to address this problem.
Most recently, in March of 2009, Virginia has made the distinction that a financing statement is sufficient if it provides the individual debtor's name "...shown on the individual's driver's license or identification card issued by the individual's state of residence." Before them, Texas' similar approach amended statute to clarify that a financing statement is sufficient if it provides the individual debtor's name "...shown on the individual's driver's license or identification certificate issued by the individual's state of residence."
Tennessee's approach was to clarify that the individual debtor's name is sufficient only if it provides the name shown on one of the following pieces of identification: drivers license, birth certificate, passport, social security card, or military i.d. While this may create a safe-harbor for filers, the approach does little to resolve the underlying problem of determining the 'name' for the searcher, as it is quite possible that name variations would appear across these various forms of documentation.
Similarly burdensome for searcher, proposed legislation in Nebraska - due to be signed into effect in 2010 - clarifies §9-506 to read that in the case of a debtor who is an individual, if a search of the filing office records using only the debtor's correct last name would disclose a financing statement that fails to sufficiently provide the name of the debtor - then the name provided does not make the financing statement seriously misleading.
In response to a palpable outcry for resolution, an Article 9 Joint Review Committee has been hard at work reviewing proposals and developing analysis of how Article 9 might be revised to best resolve the problem. The three approaches that have, to date, risen to the surface are the "Safe Harbor," "Only If" and "Priority Proposal" approaches. In brief, a "Safe Harbor" approach declares that a financing statement providing debtor's name as presented on the state-issued driver's license at the time of filing is sufficient even if the name on the license is not the Debtor's name.
"Only If" dictates that the financing statement bearing Debtor's name as it appears on the driver's license is sufficient...but goes on to say that those financing statements bearing a name other than the name appearing on the driver's license - even if it is the Debtor's name - are insufficient to the extent that they do not appear on a search of the state UCC records using the name shown on the driver's license.
The "Priority Approach" lands us in the middle declaring that those filers using the debtor's name as it appears on the driver's license - even if it is not the Debtor's name - would have priority over those filers using Debtor's name.
Upon the conclusion of their analysis, it appears that the committee has determined that the best course of action would be to recommend the "Safe Harbor" approach. In conjunction with this recommendation, the committee has also encouraged the Uniform Law Commissioners to adopt a "Form of Name" approach to clarify the sufficiency of Debtor's name. The Form of Name rule would provide that a financing statement that sets forth the debtor's surname, first given name and first initial of second given name (if any) is sufficient. This eliminates the burden of filers to feel compelled to include a full middle name or suffix.
None of these approaches, however, will be a 'quick fix.' Further analysis (specifically regarding the dissimilarities between the state Business and Secured Transaction information management intake capabilities vs. the intake capabilities of the agencies that maintain driver's license information) must be accomplished before a discussion of the impact of transition takes place.
Until such time, it remains imperative that searchers and filers continue their due-diligence - noting name variations and searching and filing under all. For guidance on how to best protect yourself from the inherent risk associated with the UCC search and filing process, contact First American's UCC division today.
