Reps. Steuerwald and Noe have introduced HB 1373 which would provide a mechanism to have a financing statement reviewed by a court where the financing statement is filed by someone unconnected to the transaction, without the consent of the secured party (in the case of an amendment or termination), or for the purpose of harassment.
A financing statement is typically a document filed with the Secretary of State indicating that a creditor has a security interest in a certain category of property belonging to the debtor. It puts other potential creditors or purchasers of that type of property on notice that they might have to deal with the first creditor to secure their own loan or acquire certain kinds of property free of a lien by the named creditor. They aren’t hard to file, and certain individuals and groups like to engage in what has been dubbed “Redemption Song” blog post.
I don’t know if this sort of activity is the major impetus for HB 1373, but in any event, it allows someone who believes a financing statement is bogus to go to court. If the judge agrees, the judge is to declare the financing statement ineffective, have the filing agency strike the record, and award attorneys fees and collection costs. It also makes such a filing a Class A misdemeanor, elevated to a Class D felony.
I like the sentiment. As a practical matter, however, the additional litigation on the entirely bogus ones will help clog the courts which is a stated goal of the “paper terrorists” and, will add another level of risk and complexity to those commercial cases involving a legitimate dispute between creditor and debtor where the debtor is trying to get leverage in the litigation against the creditor.
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