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.
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.