Bogus Filing Tactics: A Primer

Paul Hodnefield, Corporation Service Company The Honorable Elaine Marshall, North Carolina

Secretary of State Trevor Timmons, Colorado

38th Annual Conference – Savannah, Georgia

Method

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Clues?

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Harassment

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Estate

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Trust

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Address

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Amount

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General Observations

• Lenders are Most Common Target

– UCC record serves as basis for defense in foreclosure actions or for proactive litigation.

– Often names other persons that play a role in the foreclosure process.

• Harassment is Also Common

– Used against businesses or individuals that have crossed the perpetrator.

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Preemptive Measures in North Carolina

• North Carolina General Statutes – § 25-9-516. What constitutes filing; effectiveness of filing.

• (b)(8) In the case of a record presented for filing at the Department of the Secretary of State, the Secretary of State determines that the record is not created pursuant to this Chapter or is otherwise intended for an improper purpose, such as to hinder, harass, or otherwise wrongfully interfere with any person.

– § 25-9-518. Claim concerning inaccurate or wrongfully filed record. • (b2) Statement by Secured Party of Record. - A person may file in the filing office an

information statement with respect to a record filed there if the person is a secured party of record with respect to the financing statement to which the record relates and believes that the person that filed the record was not entitled to do so under G.S. 25-9-509(d).

• (b3) Contents of Statement Under Subsection (b2). - An information statement under subsection (b2) of this section must:

– (1) Identify the record to which it relates by the file number assigned to the initial financing statement to which the record relates;

– (2) Indicate that it is an information statement; and – (3) Provide the basis for the person's belief that the person that filed the record was

not entitled to do so under G.S. 25-9-509(d).

• North Carolina takes a proactive approach to fraudulent filers • North Carolina also has a “do not file” list, provided by the

federal courts

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ULC Hip Pocket Amendment

• Developed as an alternative to non-uniform bogus filing legislation – It is not intended to replace existing bogus filing laws

• The amendment introduces the concept of a “trusted filer.” – This is a person that regularly files with a filing office and has provided the

office with current contact information sufficient to establish its identity – This person has been issued credentials to access online filing services or has

established a prepaid or direct debit account for payment of filing fees.

• It also provides a mechanism for a person identified as a debtor to file an affidavit of wrongful filing. – When the filing office receives such an affidavit, there are set procedures to

follow to terminate the filing, including sending notice to the secured party of record

– Secured party may bring a court action and the amendment provides rules and procedures in the event of court-ordered reinstatement

– There is a filing office administrative review prior to termination of a record submitted by a trusted filer.

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2015 Legislation

• Indiana – Passed bill that requires court approval to file a

common-law lien against a public official.

• Utah – Hip Pocket Amendments (“HPA”) enacted.

• Maryland – Enacted law with similar concepts to HPA.

• New Jersey – Passed bill that adds reasons for rejection and

exempts records filed by a “registered organization.”

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2015 Pending Bills

• California – Gives counties more authority to reject potentially

fraudulent UCC records.

• Maine – Provides additional reasons for rejection.

• New York, Nevada and Kansas – Bills revise civil and/or criminal penalties for filing

fraudulent UCC records.

• Pennsylvania – Provides for administrative hearings on fraudulent

UCC records.

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IT Resources

• Disclaimer!

– I’m not talking about “strawman” filers specifically

– Many resources already available (including from my esteemed co-panelists)

– I am talking about detection and response in the digital world

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Three Keys

• Key #1: Know (what is happening on your website)

• Key #2: Take Action (based on what you are permitted to do)

• Key #3: Support Enforcement (whether internal or outside your office)

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Key #1 Know your Filers & Your Filing

System

– This used to be easy

– Move to online makes this harder

– But, all is not lost!

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• Develop a Baseline

Key #1 Know your Filers & Your Filing

System

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• Identify Anomalies

Key #1 Know your Filers & Your Filing

System

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• Investigate (in the graph below, “visitors” #2-7 are each between 130k and 88k visits)

Key #1 Know your Filers & Your Filing

System

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• Block and apologize later

Key #2 Take Action

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• Collect Information

– Filing information

– IP address

– Payment information

– Other filings associated with findings

Key #2 Take Action

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• Contact Appropriate Security Team(s) – State

– Agency

• Contact Law Enforcement – State Bureau of Investigation

– State Attorney General

– Secret Service

– U.S. Attorney

Key #2 Take Action

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• Consider Contacting Advocates for Victims

– Consumer Protection

– Identity Theft Unit

• Coordinate with Law Enforcement

Key #2 Take Action

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Key #3 Support Enforcement

• Follow their Lead

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• Affidavits

Key #3 Support Enforcement

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• Credit Card Issuers

• Banks

Key #3 Support Enforcement

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• Develop a Process

Key #3 Support Enforcement

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• Stick with It!

Key #3 Support Enforcement

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Wrap Up

• Develop Knowledge

• Do What you Can

• Establish Relationships

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