Court Applies Former Article 9 Standard to Sufficiency of Judgment Lien Debtor Name
By Paul Hodnefield, Esq.
Since 2001, those who file UCC records have been well aware that even seemingly minor errors in a debtor name can render a financing statement seriously misleading. However, what standard do the courts apply to the sufficiency of debtor names that appear on other types of lien records? A court recently addressed that question with respect to a judgment lien in the case of Eastern Savings Bank v. Rowl, 2017 U.S. Dist. LEXIS 75347 (E.D.N.Y. May 16, 2017).
This case arose out of a foreclosure action brought by Eastern Savings Bank, FSB, (“Eastern”) that involved a series of mortgages and other claims against an individual who owned some commercial property (“Rowl”). However, one central issue in the case was the validity and relative priorities of a mortgage, UCC security interest, and a judgment lien.
In 2007, Eastern made a commercial loan to Rowl. To secure the loan, Eastern required Rowl to execute a mortgage. In addition, Rowl granted Eastern a security interest in Rowl’s personal property. Eastern filed its financing statement to perfect the security interest in personal property on October 25, 2007. However, Eastern did not record the mortgage until March 2008.
That same year, two other parties obtained a judgment against Rowl. One judgment creditor, La Bob, Inc, (“LBI”) docketed its judgment on July 30, 2007. Under the applicable law, docketing the judgment created a judgment lien on the debtor’s real property within the county. While LBI docketed the judgment under the debtor’s correct last name, it incorrectly listed the first name as “Dolores” instead of the debtor’s actual first name, “Delores.”
In 2015, Eastern brought suit to foreclose on its mortgage and UCC security interest. LBI objected, claiming that its judgment lien had priority over Eastern’s mortgage because it was docketed before the mortgage was recorded. The issue was then brought before a U.S. magistrate judge (the “Magistrate”).
Eastern argued that the misspelling of Rowl’s first name rendered the judgment lien invalid. Therefore, according to Eastern, the mortgage had priority over LBI’s claim. However, LBI asserted that a typographical error that resulted in docketing of the judgment against a derivative of the correct name did not render the judgment lien invalid under applicable state law.
The Magistrate began by observing that there was no case law that directly addressed such an error in a judgment lien debtor name. Moreover, the issue was not clearly addressed in the applicable statutes. Due to the lack of case law and statutory guidance, the Magistrate instead looked at analogous cases arising from UCC debtor name issues.
The UCC debtor name cases cited by the Magistrate were all decided prior to the effective date of Revised Article 9 in 2001. None would still apply to the current standards for sufficiency of a debtor name under UCC Article 9. Nevertheless, the Magistrate was persuaded by these cases that an error in the judgment lien debtor name was harmless if a reasonably diligent title searcher would have found the record despite the inaccuracy. Consequently, the Magistrate recommended that the court find the judgment lien docketed by LBI was valid.
The takeaway from this case is that courts may still apply the “reasonably diligent searcher” standard for the sufficiency of statutory lien debtor names, including judgment liens, tax liens, and other involuntary liens that are filed in the public record. Those who search for such liens must take this into account and search under a broader range of name variations than might be necessary when conducting a UCC search.
Paul Hodnefield is associate general counsel for CSC® and is a frequent speaker and writer on UCC due diligence issues. Please feel free to contact him with questions or comments at firstname.lastname@example.org or 800-927-9801, ext. 61730.