Disgruntled debtors seeking to evade their obligations by filing fraudulent liens soon face new threats under Illinois law. On July 25, 2012, Governor Patrick Quinn approved and signed Senate Bill 1692, which is intended to provide additional remedies for wrongfully filed UCC liens.5 Senate Bill 1692 becomes effective January 1, 2013 and will be incorporated into section nine of the Illinois Uniform Commercial Code.
Senate Bill 1692 provides new civil and criminal penalties against debtors who seek to dodge their financial obligations to creditors by filing meritless liens. First, the bill prohibits any person from filing a financing statement that the person knows is not based on a valid lien, valid security agreement or a judgment of a court of competent jurisdiction; is for improper purposes; or contains materially false or misleading information. Individuals who violate this provision face a misdemeanor for the first offense and a felony for later offenses. Additionally, filers liable under the provision may also be made to pay statutory damages to injured parties.
The 2011 Giordano’s Pizza bankruptcy action provides a familiar and local example of individuals’ use of fraudulent liens to try to escape financial liability. During the Giordano’s bankruptcy litigation, Mr. and Mrs. Apostolou, owners of the debtor, Giordano’s Pizza, were involved with a man named Marshall Home. According to the Chicago Tribune, Home is the self-proclaimed chairman of the Tucson-based Independent Rights Party.6 Home intervened in the bankruptcy proceedings by filing a fraudulent $150 million lien against the debtor’s assets, alleged the U.S. Bankruptcy trustee. If Home’s lien were recognized, he could have become a priority secured creditor, controlled the business and eventually returned it to the Apostolous debt-free.7 At the time, the pizza chain’s largest debtor, Fifth Third Bank, was owed $45 million. During the bankruptcy proceedings held in the Northern District of Illinois, Home testified in support of the validity of his lien despite the fact that Mr. Apostolou admitted on record that he never owed Home a debt. At one point, the presiding U.S. Bankruptcy Judge, Pamela Hollis, referred to Home’s actions and presence in the courtroom as “a sideshow.”8 Eventually, the court appointed a trustee to oversee Giordano’s Pizza and enjoined the Apostolous from entering the debtor’s businesses.
The Giordano’s Pizza litigation provides an example of some of the tactics individuals can use to try to circumvent debts and sidestep the justice system. Now, Illinois lawmakers have taken steps to curtail frivolous filings through enacting Senate Bill 1692.
The new bill not only discourages debtors from filing frivolous lawsuits, but it also provides remedies for individuals that are wrongly named as debtors. Under Senate Bill 1692, persons wrongly named as debtors may submit an affidavit and attest that the financing statement is fraudulent. The affidavit is submitted under penalty of perjury to the Secretary of State, the entity charged with investigating fraudulently filed UCC financing statements. It should be noted, however, that persons named as debtors on financing statements by “a regulated financial institution” may not submit an affidavit alleging a fraudulent filing. Most commercial lenders are covered by the term “regulated financial institution.”
Under the new law, the filing office may refuse any record if it believes in good faith that the filing is intended to defraud or harass a public officer in the performance of his or her public duties.
Senate Bill 1692 equips creditors like commercial lenders with the necessary tools to curtail and combat frivolous actions early in the game. Most importantly, victims of fraudulent liens can dispose of frivolous filings by simply submitting an affidavit. Such a measure should save creditors and other victims time and money. Lastly, the measure should also discourage fraudulent filers from using the justice system as a means of harassment and retribution.