Satisfaction and Release by Unauthorized Parties in Personal Property Financing

Satisfaction and Release by Unauthorized Parties in Personal Property Financing

by Robert S. Fisher

Indications have begun to appear about possible problems in unsecured and secured personal property financing with respect to the giving of satisfactions and releases by unauthorized parties in all types of lending. Some of the situations in which this risk may arise are reviewed in this article.

Excerpt:

Foreclosure activity has produced much of the recent spate of robo-signing activity, including class actions and multi-billion dollar settlements and now guilty pleas or agreements in criminal actions against individual officers, most of it in secured residential real estate lending. Now warnings have begun to appear about possible problems in unsecured and secured personal property financing as well and with respect to the giving of satisfactions and releases by unauthorized parties in all types of lending. (See Morgenson, Guilty Pleas in Foreclosure Fraud Cases, NY Times, Business Section, November 21, 2012.)

Skepticism Over Unauthorized S/R Exposure

Veteran secured credit analysts generally seem skeptical that any obligor-recipient would look a satisfaction or release ("S/R") in the mouth like a horse for sale, as it were, if consistent with a seemingly appropriate payoff letter received pre-closing, but the practitioner nevertheless must be cautious for various reasons.

The party having the duty to issue the S/R may be panicked into using an unauthorized individual not even in its employ to execute the S/R just to meet a statutory consumer goods deadline such as one month after no debt remains secured by the filing or 20 days after such a form is requested by an authenticated demand under Uniform Commercial Code § 9-513 from or on behalf of the debtor. This dilemma can easily result when, for example, the portfolio containing the loan has been resold or the servicer changed and the old authorized signatory has not yet been changed or made known to companies handling the new transaction and integration of the portfolio into the acquirer's software system has not yet been completed. As lenders improve the compatibility of their systems, such problems can be avoided or minimized but we are not sufficiently out of the woods yet to ignore the problem. Counsel in such corporate transactions can help by diligent setup of file tracking and insuring the creation of the necessary authorizations on any change.

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Robert S. Fisher has practiced extensively in the area of consumer financing of motor vehicles, recreational vehicles, recreational yachts, general aviation aircraft, and general commercial equipment leasing. He has represented banks, finance, general leasing, and yacht chartering companies in setting up leasing programs and in the purchase, sale, and securitization of vehicles and equipment.

He has lectured on recreational vessel matters before the Maritime Subcommittee of the American Bar Association, where he is chair of the Boat Working Group of the National Title Task Force, and at the Association of the Bar of the City of New York, where he was a member for two terms of the Admiralty Committee. He has also lectured for the Conference on Consumer Finance Law of Oklahoma City University School of Law and written for the Consumer Financial Quarterly and the Rutgers Law Review. Mr. Fisher writes frequently on maritime legal topics for Yachting Magazine.