Volume 6, Issue 1 (Summer)
Local Filing Issues
Disastas Averted!
By
Jennifer Liptan
Two recent decisions by law makers and state administrators to 'do nothing' have, quite possibly, averted crisis in the UCC search and filing world.
In what some industry insiders were calling "The Disasta in Nebraska", legislators ultimately acted to repeal pending amendments to section 9-506(c) of the U.C.C.
In response to continued confusion regarding individual Debtor naming standards, some jurisdictions have adopted non-uniform provisions to their statutes addressing appropriate guidelines to follow when searching or filing against a Debtor who is an individual.
Last year, Virginia 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 its 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."
Nebraska, however, proposed a more un-orthodox approach to the problem in 2008 when they first introduced amendments to their statute declaring that "If a search of the records of the filing office under…in the case of a debtor who is an individual, the debtor's correct last name, using the filing office's standard search logic, if any, would disclose a financing statement…the name provided does not make the financing statement seriously misleading." In short, this approach creates a W I D E safe harbor for filers and suggests that any financing statement correctly reflecting Debtor's last name "only" is potentially effective.
The consequences of this impending change sent shockwaves through the industry as searchers imagined the worst-case-scenarios of pouring over results for 'SMITH,' 'GARCIA,' or 'LEE.' After several delays, Nebraska's governor signed Bill 751 repealing the amendments to the statute and returning the language to its original text.
State administrators in Massachusetts were in the very early stages of considering a change to their current search logic when the news from Nebraska was leaked to the public in February.
Under the model administrative rules developed by the International Association of Commercial Administrators, states have been encouraged to incorporate certain "noisewords" (words within a search string that are ignored by the database) into their standard search logic. Most often, these noisewords are commonly used endings of a registered entity's name. Words like: Corporation, Corp., LLC, LLP, etc. are often disregarded by search databases in an effort to produce a wide range of results for the searcher and safe-harbor for the filer.
Massachusetts began the process of considering the consequences of revising their logic to eliminate these noisewords, thus creating a very strict, 'exact name' search logic - forcing filers and searchers alike to adhere to Article 9's cornerstone: Get The Name Right.
While the goal may be admirable, any state's revision to their search logic is a game-changer for filers already on record. Financing statements considered 'effective' today, could be rendered 'in-effective' tomorrow. Ultimately, though Massachusetts continues to take an ongoing, pro-active approach to analyzing their search logic, they have determined that they will not be making any changes to their currently established 'noisewords' at this time.
For the time being, it seems that our UCC legislators and administrators are treading lightly when it comes to making changes to their statutes and administrative rules. Perhaps they are responding to an industry out-cry to do no harm while attempting to strengthen an imperfect system. Legislators continue to look to our Uniform Law Commissioners to address the code's deficiencies.
