Monday, November 4, 2013
THE LEGAL COMMUNITY
Commercial Liens — Paper Terrorism in Your Mail Box
By DAVID J. COOK
(The author is the senior attorney for Cook Collection Attorneys PLC and publisher of CollectionLawReporter.com)
Who are your Defendants? Some Defendants are individuals who engaged in stupid, malicious, or foolish conduct which injured, raped or killed someone. Your client is person in the wheelchair or the executor of an estate. If a victim of sexual violence, your client’s voice resonates from the bottom of a well..Your defendant lacks insurance, or the loss is uninsurable, but the defendant has assets. At the end of rainbow (the verdict), you are going to pull teeth. Face it, this denouement is high conflict.
What is going to happen? Is the check going to fall from the sky? In about 99% of the cases, the defendant is going to sober up. File bankruptcy, sell some property, make a deal, or engage in a massive fraudulent conveyance. These are all settled expectations.
What about the 1%? Who are they? These are dangerous people whose DNA permeates the judgment. These judgments are coiled snakes. These people strike at the plaintiff’s counsel, which is you, my dear reader. Embrace this risk because this person oozes malevolence when he ran over the decedent and backed up the car to finish off the job. This is a story of grief, violence and terror. This person might be a sovereign citizen or some other deranged person.
What can this person do to you, yes, you who are reading this article in the security of your office?
The weapon of choice is a paper lien. Expect terror lurking in the county recorder, secretary of state, or your home mailbox waiting for your spouse to pop open the mail. The first words are “Are we losing our home?” As faithful author has been the victim (more than once) of this terror, the more jaded response: “You are going to put a stop to this? Aren’t you? You are a smart guy. When? Do it. Do it, and don’t bother coming home until you fix this problem.” Adult children are less forgiving.
The ABC’s of Liens
Let’s learn basic indexing. These individual files, or records, a financing statement or sworn affidavit of liens with the county recorder or the secretary of state which is indexed as follows:
Lien Debtor: Larry Litigator.
Lien Creditor: Joe Vindictive (“Filer”):
Collateral: 100 Oaks Street, Anytown, USA 000000 and all personal and real property of Larry Litigator.
The UCC Permits Anyone to File
Article 9 of the Uniform Commercial Code is open drawer. What does that mean? The filing offices of the secretary of state and county recorder do not screen filings. The UCC (Division 9 of the California Commercial Code) authorizes a secured creditor to file, or record, the UCC #1 without the actual “wet” signature of the debtor. UCC § 9-509(a) does not compe the filing agencies do not verify whether a debtor presumptively authorizes the creditor to file or record the financing statement or other lien. The Filer can record or files UCC#1’s that names the client, attorney, spouses, law firm, partners, associates or paralegals as “lien Defendants” in the financing statement and the Filer who would be the “lien creditor.” The Filer can list the collateral as the “personal property” or “real property.” of the lien debtors.
Recorded Documents Are Even More Damaging
The county recorder works off the grantor/grantee index of real property transactions. This is how a recorded bogus financing statement appears in the recorder’s office:
Larry Litigator is the “grantor.”
Fred the Filer is the “Grantee.”
The county recorders are open to the public and most are online.
The UCC is not the sole weapon. The Filer can record a “Claim of Lien Affidavit” or “Affidavit of Lien” with the county recorder. The typical language is the following:
Litigator, Litigator & Litigator, Attorneys, and Larry Litigator, Esq. is the grantor
Fred the Filer is the Grantee.
Open the Mail at Your Own Peril
The county recorder might mail the lien notices to the “lien debtor” at the address listed in the Affidavit of Lien. The Filer also might mail the “liens notices.” Family members would go berserk upon opening the envelope.
Liens Buried In the Archives of the Secretary of State
High conflict attorneys should suspects a campaign of liens. Search through the Los Angeles Recorder which is not online. Commercial services, such as Lexis Nexis, Westlaw, D&B, and search firms, which all offer low cost access to the Los Angeles recorder [and others] grantor and grantee index.
The secretary of state is online, but requires a small fee. Commercial services likewise offer low cost, or no cost, search services. If an attorney is engaged in a high risk or combative practice, prudence dictates running searches through the state of state and county recorder on a periodic basis to ferret out these paper liens.
What Are the Damages?
These liens hobble any credit transaction, the refinancing of a home, or loans to buy a new home.
Some filers insert the “lien debtor’s” residential address and property description in the “collateral box” which replicate viable fixture filings under UCC §§ 9501(a)(1) and 9503(b)(3)[“ . . . . Description of the real property to which the collateral is related.] Cautious title companies might hesitate in insuring title in favor of the buyer. These liens, no matter how fraudulent, might obstruct the sale of an expensive home or commercial real estate. These liens damage title to real property and render some title unmarketable.
These Liens Are Retaliatory and Intimidating
Once a lien is filed against parties, or attorneys, the fear of additional liens spreads and deters others from participating in the litigation, including signing any papers, showing up in court, or even having a names disclosed in discovery. Anybody associated with the case wants the case to “go way.” Key witnesses take vacations when they should appear for a deposition or trial.
UCC §9518 Abandons You to the Ever Voracious Wolves
Article 9 of the UCC does not offer self help to remove the liens. At best UCC§ 9518 offers the “lien debtor” an opportunity to explain the bogus filing but not expunge the lien. Gruber v. Tilton explains this dilemma as follows:
There is no procedure for revoking or removing a UCC–1. The form stays filed over its life, typically five years, and Vasquez’s office retains it for an additional year after that. A UCC–1 can be continued in a six-month window prior to its expiration date. A person can file a termination statement stating a lien has been terminated, but the original UCC–1 is still retained on record. A UCC–3 is an amendment document that can be used to continue the lien for an additional five years, to file a termination statement, to file an assignment, or to file a change in collateral. A UCC–5 is a correction statement filed by a person who believes the record is either in error or false.
While the filing or recording of the UCC#3 or UCC#5 filings would ameliorate the initial fraudulent recordings, these filings do not expunge the fraudulent UCC’s per UCC § 9518(c ).
You have to sue. The court will award big time monetary damages, an order of expungement and injunction, but this lawsuit will run up a big bill. Many Filers are indigent which renders the litigation financially futile.
Nobody Is Coming to Rescue You
The recording of a false or fraudulent lien is a crime under California Penal Code §115 [However, “Recording a false or forged instrument is not actionable under Penal Code § 115 if the instrument was not legally entitled to be recorded.”People vs. Hassan (2008) 168 Cal. App. 4th 1306, 1316]. Penal Code § 115.5 [residences]. Penal Code §531(a) criminalizes false document affecting title to property.
California Penal Code § 115.5 protects the property owner if “. . . Any false or forged document or instrument with the county recorder which affects title to, places an encumbrance on, or places an interest secured by a mortgage or deed of trust on, real property . . . .”
The UCC Leaves the Door Open to Nutcases
Article 9 “cannot provide a satisfactory or complete solution to problems caused by misuses of public records. The problem of “bogus filings” is not limited to the UCC filings but extends to real-property records as well.” The awkward and expensive remedy is the civil action to expunge the liens, enjoin further liens and award damages but at a steep cost.
UCC § 9518 (n.3) expresses the UCC antipathy toward screening bogus filings by the secretary of state or county recorder. The UCC § 9518 donut hole endangers litigators because the secretary of state and county recorder offer an open draw filing system which the invitation to paper terrorism.
Copyright 2013, Metropolitan News Company