MAY 11, 2005

Secretary of State Terri Lynn Land today announced that the Department of State’s Uniform Commercial Code (UCC) Unit has upgraded its popular online system to alert individuals named as a party to a loan agreement whenever a financial filing is made.

"This sound approach allows unsuspecting victims of fraudulent filings to take steps immediately to correct the situation before their credit is jeopardized," Land said. "Michigan is now a leader in subverting bogus filings. Private residents and public officials now have greater protection from financial harassment brought on by unscrupulous individuals."

Public Act 212 of 2004, which took effect this year, requires the state to notify individuals named as debtors and provide them with a copy of the financing statement. Michigan is unique in providing this type of debtor notification.

Notification is sent whether the financing statement was filed online, by mail or in person. The notice enables the individuals named on the filing to review it and take action if necessary. In many states, there have been fraudulent filings against public officials, such as judges and law enforcement and corrections officers, wrongly naming them as debtors to harass them or ruin credit records.

The UCC law governs commercial transactions such as sales, negotiable instruments, bank deposits and collections, and investments and securities.

A UCC financing statement is a public notice of a loan agreement between the borrower (debtor) and the lender. The statement also details any property or other items used as collateral. The UCC system allows lenders to conduct a search of its database to ensure collateral is not already encumbered before entering into a loan agreement.

Under the law, all individuals named as debtors on a financing statement will receive a letter and a copy of the financing statement. Recipients should review the documents for accuracy. If a filing was fraudulently made, the debtor may:

• File a correction statement with the state UCC office, stating why the filing is inaccurate. By law, a correction statement cannot change the recorded financing filing, but it is added to the document history and is provided if a lender ever searches the record.
• Initiate a court action against the person who filed the financing statement. Wrongly named debtors may seek appropriate equitable relief or damages. This can include obtaining a court order declaring the financing statement ineffective and ordering the state UCC office to terminate the financing statement.
• Take no action as most filings automatically expire after five years unless continued by the lender.

PA 212 also provides stiffer penalties for fraudulent filings. Anyone convicted of filing a bogus financing statement may face up to five years in prison and a maximum $2,500 fine.

Land added that UCC Online continues to be an extremely popular service with the public. Since its unveiling last June, the UCC Online processed 87,194 transactions, reaching a daily average of 521 in April. More than 3,000 customers, including lawyers, bankers, loan officers and farmers, currently access the Web-based application and the number of registered users continues to grow.

In fiscal year 2004, the department’s UCC Unit processed 196,199 financing statements and 77,831 search requests.