A2481

An Act concerning fraudulent financing statements, amending N.J.S.12A:9-501 and N.J.S.12A:9-520, and supplementing chapter 9 of Title 12A of the New Jersey Statutes.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. N.J.S.12A:9-501 is amended to read as follows:

12A:9-501. Filing Office.

(a) Filing offices. Except as otherwise provided in subsection (b), if the local law of this State governs perfection of a security interest or agricultural lien, the office in which to file a financing statement to perfect the security interest or agricultural lien is:

(1) the office designated for the filing or recording of a record of a mortgage on the related real property, if:

(A) the collateral is as-extracted collateral or timber to be cut; or

(B) the financing statement is filed as a fixture filing and the collateral is goods that are or are to become fixtures; or

(2) the Division of Commercial Recording or other office designated by Executive Order, in all other cases, including a case in which the collateral is goods that are or are to become fixtures and the financing statement is not filed as a fixture filing.

(b) Filing office for transmitting utilities. The office in which to file a financing statement to perfect a security interest in collateral, including fixtures, of a transmitting utility is the Division of Commercial Recording or other office designated by Executive Order. The financing statement also constitutes a fixture filing as to the collateral indicated in the financing statement which is or is to become fixtures.

(c) If a filing office receives a financing statement under paragraph (2) of subsection (a) of this section or subsection (b) of this section for filing, and any debtor identified on the financing statement is an individual, the office shall provide written notice of the filing of the financing statement to that debtor. The filing office shall determine the form of the written notice and the written notice shall contain at least all of the following information:

(1) The debtor's name and address as shown on the financing statement;

(2) The secured party's name and address as shown on the financing statement; and

(3) The remedies available to the debtor under section 3 of P.L. , c. (C. ) (pending before the Legislature as this bill) if the debtor believes that the financing statement is erroneously or fraudulently filed.

(d) In addition to the written notice described in subsection (c) of this section, the office shall provide at no charge to a debtor described in that subsection a copy or image of the filed financing statement and any attachments. If the debtor requests additional copies or searches, the fees provided in 12A:9-525 shall apply to that request.

(e) A person shall not knowingly or intentionally file a false or fraudulent financing statement with any office under paragraph (2) of subsection (a) of this section or subsection (b) of this section. In addition to any other penalty provided by law, a violation of this subsection is a crime of the third degree. If the person is convicted of the violation, the court may find that the financing statement is ineffective and may order the filing office to terminate the financing statement and may order restitution.

(f) If a person files a false or fraudulent financing statement with any office under paragraph (2) of subsection (a) of this section or subsection (b) of this section, a debtor named in that financing statement may file an action against the person that filed the financing statement seeking appropriate equitable relief or damages, including, but not limited to, an order declaring the financing statement ineffective and ordering the office to terminate the financing statement, and reasonable attorney fees.

(cf: P.L.2001, c.386, s.66)

2. N.J.S.12A:9-520 is amended to read as follows:

12A:9-520. Acceptance and Refusal to Accept Record.

(a) Mandatory refusal to accept record. A filing office shall refuse to accept a record for filing for a reason set forth in 12A:9-516 (b) and may refuse to accept a record for filing only for a reason set forth in 12A:9-516 (b).

(b) Communication concerning refusal. If a filing office refuses to accept a record for filing, it shall communicate to the person that presented the record the fact of and reason for the refusal and the date and time the record would have been filed had the filing office accepted it. The communication must be made at the time and in the manner prescribed by filing-office rule but, in the case of a filing office described in 12A:9-501 (a) (2), in no event more than two business days after the filing office receives the record.

(c) When filed financing statement effective. A filed financing statement satisfying 12A:9-502 (a) and (b) is effective, even if the filing office is required to refuse to accept it for filing under subsection (a). However, 12A:9-338 applies to a filed financing statement providing information described in 12A:9-516 (b) (5) which is incorrect at the time the financing statement is filed.

(d) Separate application to multiple debtors. If a record communicated to a filing office provides information that relates to more than one debtor, this part applies as to each debtor separately.

(e) Notwithstanding any other provision of Chapter 9 of the Uniform Commercial Code, N.J.S.12A:9-101 et seq., if a person presents a record to a filing office for filing or recording, the filing office may refuse to accept the record for filing or recording if one or more of the following circumstances exist:

(1) The record is not required or authorized to be filed or recorded with the filing office;

(2) The record is being filed or recorded for a purpose outside the scope of Chapter 9 of the Uniform Commercial Code;

(3) The filing office has reasonable cause to believe the record is materially false or fraudulent;

(4) The record asserts a claim against a current or former employee or officer of a federal, state, county, or other local governmental unit that relates to the performance of the officer's or employee's public duties, and for which the filer does not hold a properly executed security agreement or judgment from a court of competent jurisdiction; or

(5) The record indicates that the debtor and the secured party are substantially the same or that an individual debtor is a transmitting utility.

(f) If a correction statement filed with the filing office under 12A:9-518 alleges that a previously filed record was wrongfully filed, the filing office shall, without undue delay, determine whether the contested record was wrongfully filed. To determine whether the record was wrongfully filed, the filing office may require the person who filed the correction statement or the secured party to provide any additional relevant information requested by the filing office, including an original or copy of a security agreement that is related to the record. If the filing office finds that the record was wrongfully filed, the filing office shall terminate the record and the record is void and ineffective. The filing office shall notify the secured party named in the contested record of the termination.

(g) If the filing office refuses to accept a record for filing or recording pursuant to subsection (e) of this section, the person who presented the record to the filing office may commence an action under section 3 of P.L. , c. (C. ) (pending before the Legislature as this bill) to require the filing office to accept the record for filing or recording. A record ordered by the court to be accepted is effective as a filed record from the initial filing date except as against a purchaser of the collateral which gives value in reasonable reliance on the absence of the record from the files.

(h) A filing officer who, acting in a manner that does not subject the filing officer to personal liability under the statutes of this State, improperly refuses to accept a record for filing or recording under subsection (e) of this section is not personally liable for the improper refusal or determination.

(i) Subsection (e) of this section does not apply to a financing statement filed by a regulated financial institution or a representative of a regulated financial institution. If a regulated financial institution that is attempting to file a financing statement is organized under the law of a governmental unit other than this State, the filing office may request the regulated financial institution or its representative to provide verification of regulation or licensure in the jurisdiction under whose law the institution is organized. As used in this subsection, "regulated financial institution" means that term as defined in section 3 of P.L. , c. (C. ) (pending before the Legislature as this bill).

(cf: P.L.2001, c.386, s.84)

3. (New section) (a) A person identified as a debtor in a financing statement filed with the filing office may file an affidavit in the form prescribed under subsection (b) of this section stating that the financing statement is fraudulent. A person shall not file an affidavit under this subsection with respect to a financing statement filed by a regulated financial institution or a representative of a regulated financial institution.

(b) The filing office shall adopt and make available a form affidavit to be used to give notice of a fraudulent financing statement under subsection (a) of this section.

(c) On receipt of an affidavit under subsection (a) of this section, the filing office shall terminate the financing statement effective on the date the affidavit is filed.

(d) The filing office shall not charge a fee to file an affidavit under this section. The filing office shall not return any filing fee paid for filing the financing statement, regardless of whether the financing statement is terminated under this section.

(e) The filing office shall send notice of the termination of a financing statement under subsection (c) of this section to the filer of the financing statement advising the filer that the financing statement has been terminated. If the filer of the financing statement believes in good faith that the statement was legally filed and is not fraudulent, the filer may file an action to reinstate the financing statement.

(f) If the court in an action under this section or 12A:9-520(g) determines that the financing statement should be reinstated or accepted, the court shall provide a copy of its order to the filing office. On receipt of an order reinstating a financing statement, the filing office shall file a record that identifies by its file number the initial financing statement to which the record relates and indicates that the financing statement has been reinstated.

(g) On the filing of a record reinstating a financing statement under subsection (f) of this section, the financing statement is effective as a filed record from the initial filing date. If a financing statement that is reinstated would have lapsed during the period of termination, the secured party may file a continuation statement within 30 days after the record reinstating the financing statement is filed. The continuation statement is effective as a filed record from the date the financing statement would have lapsed. However, a financing or continuation statement is not retroactive as provided in this subsection as against a purchaser of the collateral that gives value in reasonable reliance on the absence of the record from the files.

(h) If the court in an action under this section determines that the financing statement is fraudulent, the filer of the financing statement shall pay the costs and expenses incurred by the person identified as a debtor in the financing statement in the action.

(i) An individual who files a materially false or fraudulent affidavit under subsection (a) of this section is guilty of a crime of the third degree.

(j) As used in this section, "regulated financial institution" means a financial institution subject to regulatory oversight or examination by a state or federal agency. Regulated financial institution includes a bank, savings bank, savings association, building and loan association, credit union, consumer finance company, industrial bank, industrial loan company, insurance company, investment company, installment seller, mortgage servicer, sales finance company, or leasing company.

4. This act shall take effect immediately.

STATEMENT

This bill provides remedies for victims of fraudulent financing statements filed pursuant to the Uniform Commercial Code. The bill provides victims with pre-filing and post-filing remedies, as well as providing notice requirements so victims are notified when a financing statement has been filed against them.

Under current law, financing statements are forms filed by creditors with the State or local government to perfect a security interest in property held by a debtor, which is used as collateral against the loan. While the vast majority of financing statements are filed for valid purposes with authorization from the parties to the loan, it has become increasingly common for financing statements to be filed fraudulently as retaliatory measures meant to harass individuals. Fraudulent financing statements can cause serious financial consequences to victims of these filings, as the filings damage credit scores and may cause difficulties in selling or purchasing real property.

Under the bill, a filing office must provide written notice of the filing of certain financing statements to the debtor identified on the financing statement if that debtor is an individual, and provide at no charge to that debtor a copy or image of the filed financing statement and any attachments.

The bill provides that a person who knowingly or intentionally files a false or fraudulent financing statement with any office, in addition to any other penalty provided by law, is guilty of a crime of the third degree. If the person is convicted of the violation, the court may find that the financing statement is ineffective and may order the office to terminate the financing statement and may order restitution. Additionally, the debtor named in the financing statement may file an action against the person that filed the financing statement seeking appropriate equitable relief or damages.

Under the bill, if a person presents a record to a filing office for filing or recording, the filing office may refuse to accept the record for filing or recording if one or more of the following circumstances exist:

(1) The record is not required or authorized to be filed or recorded with the filing office.

(2) The record is being filed or recorded for a purpose outside the scope of Chapter 9 of the Uniform Commercial Code.

(3) The filing office has reasonable cause to believe the record is materially false or fraudulent.

(5) The record indicates that the debtor and the secured party are substantially the same or that an individual debtor is a transmitting utility.

The bill provides that if a correction statement filed with the filing office alleges that a previously filed record was wrongfully filed, the filing office must determine whether the contested record was wrongfully filed.

Under the bill, a filing officer who, acting in a manner that does not subject the filing officer to personal liability under the statutes of this state, improperly refuses to accept a record for filing or recording is not personally liable for the improper refusal or determination.

The provisions of the bill concerning a filing office refusing to accept a financing statement do not apply to a financing statement filed by a regulated financial institution or a representative of a regulated financial institution. If a regulated financial institution that is attempting to file a financing statement is organized under the law of a governmental unit other than this State, the filing office may request the regulated financial institution or its representative to provide verification of regulation or licensure in the jurisdiction under whose law the institution is organized.

Under the bill, except with respect to a financing statement filed by a regulated financial institution, a person identified as a debtor in a financing statement filed with the filing office may file an affidavit with the filing office stating that the financing statement is fraudulent. On receipt of that affidavit, the filing office shall terminate the financing statement effective on the date the affidavit is filed.

The bill provides that the filing office must send notice of the termination of a financing statement to the filer of the financing statement advising the filer that the financing statement has been terminated. If the filer of the financing statement believes in good faith that the statement was legally filed and is not fraudulent, the filer may file an action to reinstate the financing statement. If the court determines that the financing statement should be reinstated or accepted, the court shall provide a copy of its order to the filing office.

The bill provides that if the court determines that the financing statement is fraudulent, the filer of the financing statement must pay the costs and expenses incurred by the person identified as a debtor in the financing statement in the action.

Under the bill, an individual who files a materially false or fraudulent affidavit to remove a financing statement is guilty of a crime of the third degree.