Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii

Sir:

Your Committee on Commerce, Consumer Protection and Housing, to which was referred S.B. No. 2701 entitled:

begs leave to report as follows:

The purpose of this measure is to enable the Bureau of Conveyances to more readily distinguish between legitimate and frivolous financing statements.

Testimony in support of the measure was received from the Attorney General. The Department of Land and Natural Resources supported the intent of the measure but was concerned that the amendments made by the measure to Chapter 490, Article 9, Hawaii Revised Statutes, would take the language contained in that article out of compliance with the Uniform Commercial Codes enacted by other states. Echoing the same concerns as the Department of Land and Natural Resources, the Commission to Promote Uniform Legislation and the Hawaii Bankers Association opposed the passage of the measure.

Your Committee finds that there is a problem with the recording at the Land Court or the Bureau of Conveyances of invalid instruments that purport to affect the property interests of members of the general public, including but not limited to government officers and employees. These instruments have no basis in fact or law and have a seriously disruptive effect on property interests and titles. These instruments appear on title searches and other disclosures based on public records and are costly and time-consuming to expunge. These instruments may obstruct a property owner's ability to transfer title or obtain title insurance and financing. Your Committee also finds that the filing of frivolous financing statements, like the filing of frivolous liens, has a similar and equally disruptive effect on public officers and employees, as well as members of the general public. The effect of filing frivolous financing statements is very destructive, disruptive, and unsettling to the lives of the citizens of the State of Hawaii.

Your Committee further finds that the Bureau of Conveyances is charged with the responsibility of accepting financing statements for the State of Hawaii and the Land Court. Therefore, the Bureau of Conveyances should be responsible for preventing the filing of frivolous financing statements by assuring that the filing of the financing statements are authorized by the debtors. Consequently, it is necessary and in the best interests of the State and private parties to legislatively provide adequate measures to relieve the problem of filing frivolous financing statements.

As of July 1, 2001, the reduced requirements relating to the contents of financing statements, under the revised Uniform Commercial Code Article 9 enacted by Act 241, Session Laws of Hawaii 2000, prevent an effective means of ascertaining whether debtors have in fact authorized financing statements to be filed by so-called secured parties. Specifically, the elimination of the requirement for the debtor's authorization has made it nearly impossible for the Bureau of Conveyances to recognize and prevent the filing of frivolous financing statements.

However, your Committee is also concerned over the impact that amending the State's Uniform Commercial Code will have with regard to conformity with the Uniform Commercial Codes of other states. Your Committee believes that the same intent could be accomplished by amending a different chapter, namely Chapter 507D, Hawaii Revised Statutes, relating to nonconsensual common law liens, without incurring any adverse unintended consequences.

Based on these findings, your Committee has amended the measure by deleting its contents and inserting therefor, amendments to Chapter 507D, Hawaii Revised Statutes, which embody the spirit and intent of the original measure while avoiding the Uniform Commercial Code conformity concerns.

The amended measure enables a debtor to request that the registrar of the Bureau of Conveyances demand from a secured party a copy of the security agreement that purportedly authorized the filing of the financing statement. If the secured party does not answer the demand by the registrar within thirty days, the financing statement is deemed unauthorized. The amended measure also authorizes the registrar to determine and assess a reasonable processing fee for this service.

Your Committee believes that the amended measure will alleviate the adverse effects of the frivolous filings on innocent public officers and employees and members of the general public.

As affirmed by the record of votes of the members of your Committee on Commerce, Consumer Protection and Housing that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 2701, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 2701, S.D. 1, and be placed on the calendar for Third Reading.