Alerts

Be Careful of Corporate Scams

It looks official, but it’s not. Fraudulent operators are sending out official looking notices that can fool companies into filing non-required forms or trick them into changing their registered agent. Many are offering non-existent or unnecessary corporate secretarial services for a hefty fee. Some are even filing documents fraudulently modifying corporate registration records with Secretary of States (SOS).  Attorneys General (AG) are “trying to crack down” on such deceptive practices. Know how to spot phonies and only file authentic documents by following these helpful tips:

  • Check with state AG and SOS offices for scams circulating in areas where you do business
  • Do not reply to emails from unverified sources (or open links/attachments)
  • Read the fine print, look for statements like: “This is not a governmental agency”
  • Be suspicious of prepopulated forms that may change your agent
  • Be especially vigilant when receiving correspondence from:
    •     Annual Business Services
    •     Business Filing Services
    •     Corporate Records Service
    •     Division of Corporate Services
    •     Trademark Compliance Center International Catalogue of Trademarks, TM Edition

As your registered agent, we watch for this stuff so you don’t have to. No matter the department, our knowledgeable staff knows how to identify scammers. So when in doubt, give Capitol a call or shoot us a copy of the questionable form. We’ll help you chunk that junk and get on with your day!

Judgment and Judgment Liens

Do you know the difference between a judgment and a judgment lien? Are you familiar with the different ways that judgment liens are created? These questions are important to keep in mind when conducting a public records search.

A judgment is an official decision made by a court resolving a legal dispute and setting forth the rights and responsibilities of the parties involved. A judgment lien is a type of lien that attaches to a defendant’s property as a result of a judgment and is used to collect on that judgment.

In many states, a judgment doesn’t become a lien on the defendant’s property until the plaintiff makes an additional filing and records the judgment in the county where the property is located. However, in other states, a judgment entered by the court automatically becomes a lien on the property of the defendant located within the county. In these states, the plaintiff is not required to separately record the judgment to create a lien on the defendant’s property, as long as the property is located in the same county that the judgment is entered.

States often have different rules depending on the type of property involved. Most, if not all, states allow a judgment lien to attach to a defendant’s real property. Some states allow for a judgment lien to attach to a defendant’s personal property. In the states that allow a judgment lien to attach to both real and personal property, the method by which the lien is created may differ based upon the type of property.

Litigation Searching

Searching for civil cases by party name as long been part of a comprehensive public records search, along with state and county lien searches. When determining the correct jurisdiction to search, the Uniform Commercial Code and IRS Code have offered significant guidance as to the proper place to record liens against entities and individuals. In contrast, lawsuits may be filed in numerous jurisdictions, making it much more cumbersome to identify which courts should be searched in order to uncover lawsuits.

Even when the proper court is searched, court indices are not straightforward and litigation can be difficult to locate solely by party name. For example, many courts will index only the first named Defendant and Plaintiff; additional parties not included in the title case are nearly impossible to discover.

Limiting the scope of the search to open cases can be perilous. Searching only open litigation may preclude the searcher from uncovering all judgments. It is a common misconception that all judgments rendered in court are simultaneously recorded as a lien. This is not a requirement in all states. Even when judgments are recorded, there is often a significant gap in the time between the case closing in the court, and the final judgment appearing in the judgment index or real property records. In addition to missing judgment liens, failing to review closed cases may leave the searcher unaware that a closed case has moved forward in the appeals process and is now an open case at the appeals court.

Unfortunately, some court search issues, such as incomplete indexing of party names, are out of the control of the searcher. However, when considering best practices for litigation searching, the searcher may increase the success of his due diligence by widening the jurisdictional scope of the search to include a review of closed-case dockets.

Foreign UCC Debtors

Revised Article 9 states that the proper place to file a financing statement for a foreign debtor is in the District of Columbia, UNLESS the foreign jurisdiction in which that debtor is located maintains a system to perfect security interests by filing or recordation.

 

But which foreign countries are considered to have filing systems equivalent to the United States, and which are merely exotic tourist destinations?

 

The UCC Committee of the California Bar Association tackled this thorny issue by studying the filing regimes of 74 countries from Albania to Vietnam.  Their results were published in the UCC Law Journal in 2006.  39 U.C.C.  L.J.  109 (Nov. 2006).

 

Hopefully this study will provide guidance to lawyers and secured lenders.  Capitol Services cannot provide legal advice or assistance in determining where to file.

 

Terminating a Delaware Corporation

Corporations ending their Delaware existence must first file all applicable annual reports. This may be done either prior to or concurrently with the filing which is terminating existence (i.e., merger, dissolution, withdrawal, or conversion).

Note that this requirement only applies to corporations, not to limited partnerships or limited liability companies.

States Build Safe Harbors for
Individual Debtor Names

Tennessee and Nebraska recently joined Texas in introducing legislation designed to build a safe harbor in the current sea of uncertainty that surrounds the correct name of a debtor who is an individual.  Unfortunately, each state has charted a unique course.  Texas said that the correct name of an individual may be the name as given on the individual’s state issued driver’s license.  Tennessee said that the correct name may be the name as given on the individual’s state issued driver’s license, or birth certificate, or social security card, or a variety of other IDs.  Not to be out done in the race to build a port in the storm, Nebraska said that the financing statement is sufficient if it merely indicates the debtor’s correct last name.  So what does this mean to me as a filer and a searcher?  Some believe that these safe harbors help filers and hurt searchers.

However, what hurts searchers also hurts filers because filers typically search before and after they file.  If a lender files under a safe harbor name (individual’s current ID), the lender will still need to search under other names because past filings under other names used by the individual may also be deemed to be correct in addition to the safe harbor name.  So, perhaps these safe harbors are not really that safe after all – time will tell but you shouldn’t remove your life jacket.  Considering the possible confusion offered by the Texas and Tennessee approaches, the Nebraska approach is simple but completely unworkable.

If all the filer needs to do is get the last name right then searchers will be forced to search by last name only to reflect every financing statement that matches the last name without any regard to an individual’s first or middle name.  So, instead of reviewing a couple of filings related to Robert Johnson, a searcher will be required to review a few thousand.  To stay out of this sea of uncertainty that requires safe harbors, maybe a better idea is to require that the individual form a registered entity.