Report Title:

Prevention of the filing of frivolous financing statements

Description:

Prevents the filing of frivolous financing statements with the bureau of conveyances by assuring that the filing of the financing statements are authorized by the debtors

THE SENATE

S.B. NO.

2701

TWENTY-FIRST LEGISLATURE, 2002

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

A BILL FOR AN ACT RELATING TO THE PREVENTION OF THE FILING OF FRIVOLOUS FINANCING STATEMENTS.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. Findings and purpose. The legislature finds that there is a problem with the recording at the land court or the bureau of conveyances of invalid instruments that purport to affect the property interests of members of the general public, including but not limited to government officers and employees. These instruments have no basis in fact or law and have a seriously disruptive effect on property interests and titles. These instruments appear on title searches and other disclosures based on public records and are costly and time-consuming to expunge. These instruments may obstruct a property owner's ability to transfer title or obtain title insurance and financing. The legislature finds that the filing of frivolous financing statements, like the filing of frivolous liens, has a similar and equally disruptive effect on public officers and employees, as well as members of the general public. The effect of filing frivolous financing statements is very destructive, disruptive, and unsettling to the lives of the citizens of the State of Hawaii.

The legislature finds that the bureau of conveyances is charged with the responsibility of accepting financing statements for the State of Hawaii and the land court. Therefore, the bureau of conveyances should be responsible for preventing the filing of frivolous financing statements by assuring that the filing of the financing statements are authorized by the debtors. The legislature finds that it is necessary and in the best interests of the State and private parties to legislatively provide adequate measures to relieve the problem of filing frivolous financing statements.

As of July 1, 2001, the reduced requirements relating to the contents of financing statements, under the revised Uniform Commercial Code Article 9 enacted by Act 241, Session Laws of Hawaii 2000, prevent an effective means of ascertaining whether debtors have in fact authorized financing statements to be filed by so-called secured parties. Specifically, the elimination of the requirement for the debtor's authorization has made it nearly impossible for the bureau of conveyances to recognize and prevent the filing of frivolous financing statements.

The purpose of this Act is to enable the bureau of conveyances to more readily distinguish between legitimate and unauthorized financing statements, to be able to assure that the filing of financing statements are authorized by the debtors, and to reject those statements that do not have the authorizations of the debtors. This would alleviate the adverse effects of the frivolous filings on innocent public officers and employees and members of the general public.

SECTION 2. Section 490:9-502, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) 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; [and]

(3) Indicates the collateral covered by the financing statement[.]; and

(4) Is authenticated by the debtor, if the financing statement is an initial financing statement."

SECTION 3. Section 490:9-516, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) Filing does not occur with respect to a record that a filing office refuses to accept because:

(1) The record is not communicated by a method or medium of communication authorized by the filing office;

(2) An amount equal to or greater than the applicable filing fee is not tendered;

(3) The financing statement is not authenticated by the debtor;

[(3)] (4) The filing office is unable to index the record because:

(A) In the case of an initial financing statement, the record does not provide a name for the debtor;

(B) In the case of an amendment or correction statement, the record:

(i) Does not identify the initial financing statement as required by section 490:9-512 or 490:9-518, as applicable; or

(ii) Identifies an initial financing statement whose effectiveness has lapsed under section 490:9-515;

(C) In the case of an initial financing statement that provides the name of a debtor identified as an individual or an amendment that provides a name of a debtor identified as an individual which was not previously provided in the financing statement to which the record relates, the record does not identify the debtor's last name; or

(D) In the case of a record filed in the filing office described in section 490:9-501(a)(1), the record does not provide a sufficient description of the real property to which it relates;

[(4)] (5) In the case of an initial financing statement or an amendment that adds a secured party of record, the record does not provide a name and mailing address for the secured party of record;

[(5)] (6) In the case of an initial financing statement or an amendment that provides a name of a debtor which was not previously provided in the financing statement to which the amendment relates, the record does not:

(A) Provide a mailing address for the debtor;

(B) Indicate whether the debtor is an individual or an organization; or

(C) If the financing statement indicates that the debtor is an organization, provide:

(i) A type of organization for the debtor;

(ii) A jurisdiction of organization for the debtor; or

(iii) An organizational identification number for the debtor or indicate that the debtor has none;

[(6)] (7) In the case of an assignment reflected in an initial financing statement under section 490:9-514(a) or an amendment filed under section 490:9-514(b), the record does not provide a name and mailing address for the assignee; or

[(7)] (8) In the case of a continuation statement, the record is not filed within the six-month period prescribed by section 490:9-515(d).

SECTION 3. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its effective date.

SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 5. This Act shall take effect on July 1, 2002.

INTRODUCED BY:

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