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Final State Strategies to Subvert Fraudulent Uniform Commercial Code (UCC) Filings (A Report for State Business Filing Agencies)

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The National Association of Secretaries of State released this report in April, 2014 on sovereign citizens, urging state officials to find ways to expedite the removal of liens and increase penalties for fraudulent filings. More than a dozen states have enacted laws giving state filing offices more discretion in accepting liens, and an increasing number of states have passed or are considering legislation to toughen the penalties for bogus filings.
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  ===  NASS Report and Recommendations on the Bogus UCC Filing Problem April 2012   State Strategies to Subvert Fraudulent Uniform Commercial Code (UCC) Filings A Report for State Business Filing Agencies Updated April 2014   National Association of Secretaries of State 444 North Capitol St., NW  –  Suite 401 Washington, DC 20001  Contents The Rise in Fraudulent UCC Filings ........................................................................................................ 4   The UCC and the Role of the Secretary of State's Office ....................................................................... 5   State Approaches to Fraudulent Filings ................................................................................................ 7  Pre-Filing Administrative Remedy ......................................................................................................... 8 Post-Filing Administrative Remedy ........................................................................................................ 9 Post-Filing Expedited Judicial Relief ....................................................................................................... 9 Post-Filing Criminal/Civil Penalties ...................................................................................................... 10 Conclusion ......................................................................................................................................... 10   Appendix I: State Pre-Filing Administrative Remedies ........................................................................ 11   Appendix II: State Post-Filing Administrative Remedies ..................................................................... 16   Appendix III: State Post-Filing Expedited Judicial Relief ...................................................................... 22   Appendix IV: State Criminal and Civil Penalties .................................................................................. 24   Endnotes ........................................................................................................................................... 30    Introduction The vast majority of Uniform Commercial Code (UCC) financing statements filed with Secretary of State offices are legitimate documents authorized by relevant parties. However, financing statements with no legitimate basis under the UCC, often referred to as fraudulent or bogus filings, are a persistent problem for state filing offices and the individuals targeted by these spurious claims. Often used as a retaliatory measure by government separatist group members, prison inmates, and others looking to harass or intimidate public officials and corporations/lending institutions, these filings can create serious financial difficulties for victims. While various judicial and administrative remedies are available to those who believe that a filing has wrongfully named them as a debtor, there is a general feeling amongst the nation’s Secretaries of State that more can and should be done to address the issue. Removing a bogus lien from the public registry can be a costly and time-consuming process. In most states, this action requires a court order. The legal expenses that are involved can run thousands of dollars, and the process can take months, or even years. Restoring damaged credit histories can take even longer. Collective efforts by states to subvert fraudulent UCC filings date back to 2004, when the National Association of Secretaries of State (NASS) and the International Association of Commercial Administrators (IACA) developed recommendations to help state filing offices promulgate a more uniform, nationwide response to the problem. The recommendations, updated in 2006, included the adoption of a clear judicial remedy for victims of bogus financing statements, along with stronger civil and criminal penalties for those who submit these claims. 1  Given the dramatic increase in the number of fraudulent UCC filings during the past few years, state officials are now working under the auspices of NASS to identify additional ways to provide victims of bogus filings with expedited relief. Members of the NASS Business Services Committee have also urged states to contemplate faster, less costly options for keeping bogus liens out of public records. The role of the Secretary of State’s office and its level of authority in the filings process are typically at the center of this latest push. Nearly half of all states have implemented their own legislative approaches to subverting fraudulent Uniform Commercial Code (UCC) filings, and more than a dozen of them have given the state filing office greater influence or oversight in the process. This report is designed to provide state filing offices and other government agencies with an understanding of these relatively new laws, as well as the issues they seek to address. Section One provides background information on the rise in fraudulent filings, shedding light on the growing sovereign citizen movement and the most common types of bogus filings. Section Two provides an overview of the Uniform Commercial Code (UCC) and the important influence that this model law has on the role and authority of state filing offices. Section Three outlines the 2006 NASS/IACA Task Force recommendations and highlights recent state approaches to the proliferation of bogus filings.  The Rise in Fraudulent UCC Filings Bogus UCC filings have become more common in recent years due to the explosion in the number of people who identify with an anti-government belief system called the sovereign citizen movement, a loose network of individuals living across the U.S. who believe that the government is illegitimate. The Federal Bureau of Investigation (FBI) has designated sovereign citizens as a domestic terrorist movement, and a growing threat to law enforcement. 2  By some estimates, there are as many as 300,000 sovereigns in the United States, and their numbers are likely to increase. 3  For many of these individuals, paper-based tactics are used to strike back at government interference in their lives. Numerous websites sell how-to kits or offer to train subscribers on how to perpetrate filing schemes in exchange for large fees. Most of these filings utilize tell-tale buzzwords and share common indicators, including: -   References to the Bible, the Constitution, U.S. Supreme Court Decisions, or foreign treaties -   Names written in all capital letters, or interspersed with colons -   Signatures followed by the words “under duress,” “Sovereign Living Soul”, or a copyright symbol  -   Personal seals, stamps, or thumb prints in red ink -   The words “accepted for value”  -   Copies of personal documents, such as birth certificates or Social Security cards According to the American Bar Association, the vast majority of all bogus UCC financing statements also share another important characteristic: They indicate that the debtor is a transmitting utility. 4  This term is used to refer to “any person who is primarily engaged in the railroad, street, railway or trolley bus business, the electric or electronic communications transmission of electricity, steam, gas, or water, or the provision of sewer service.” 5  Fraudulent filers, particularly sovereigns, use this designation in an attempt to ensure that their financing statements remain indefinitely on file. Under UCC Section 9, transmitting utility filings do not lapse. This is a major contrast to most UCC financing statements, which unless continued by the secured party, will lapse after a period of five years from the date of filing. In general, there are three main types of bogus filings: harassment filings, strawman filings, and authentication filings. It is important to understand the intent behind these submissions, so that states can effectively deal with them. Learning to recognize the common indicators within these spurious claims can also be helpful for policymakers and those who work in state filing offices on the front lines of UCC transactions. All three types of spurious claims will be covered in the following section of this report. Harassment Filings Sovereigns regularly file retaliatory, bogus financing statements and real property liens against government officials, corporations, and banks (or their employees) as a response to a perceived
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