BANKRUPTCY CORNER
What is in a Name ? Everything When Perfecting Your Lien in Florida
JASON S . RIGOLI
What is the difference between Boulevard and Blvd .? Everything when it comes to perfecting lien rights in Florida . See 1944 Beach Blvd ., LLC v . Live Oak Banking Co ., Case No . No . SC21-1717 , 2022 Fla . LEXIS 1298 , 2022 WL 3650803 ( Fla . Aug . 25 ., 2022 ) ( answering certified questions from Eleventh Circuit Court of Appeals ); 1944 Beach Blvd ., LLC v . Live Oak Banking Co . ( In re NRP Lease Holdings , LLC ), Case No . 21- 11742 , -- 4th -- , 2022 U . S . App . LEXIS 27330 ( 11th Cir . Sept . 29 , 2022 ).
Generally , when a secured creditor for a secured creditor to perfect its lien rights in the property of a debtor it files a UCC- 1 Financing Statement with the Florida Secured Transaction Registry . Fla . Stat . § 679.5011 . " A financing statement must provide three pieces of information to be considered sufficient for perfection : ( 1 ) the name of the debtor ; ( 2 ) the name of the secured party ; and ( 3 ) a description of the collateral covered by the financing statement [.]" Fla . Stat . § 679.5021 ( 1 ).
Florida Statute § 679.5061 concerns the “[ e ] ffect of errors or omissions ” in financing statements . The statute provides , in relevant part :
( 1 ) A financing statement substantially complying with the requirements of this part is effective , even if it has minor errors or omissions , unless the errors or omissions make the financing statement seriously misleading .
( 2 ) Except as otherwise provided in subsection ( 3 ), a financing statement that fails sufficiently to provide the name of the debtor in accordance with s . 679.5031 ( 1 ) is seriously misleading .
( 3 ) If a search of the records of the filing office under the debtor ' s correct name , using the filing office ' s standard search logic , if any , would disclose a financing statement that fails sufficiently to provide the name of the debtor in accordance with s . 679.5031 ( 1 ), the name provided does not make the financing statement seriously misleading .
In re NRP Lease Holdings , LLC , 2022 U . S . App . LEXIS 27330 at * 5 ( quotation marks and modification in original ).
Interpreting this provision , the Florida Supreme Court explained :
The first subsection states that a financing statement may contain minor errors or omissions and remain effective to perfect a security interest , unless the error or omission renders the financing statement " seriously misleading ." § 679.5061 ( 1 ). However , the Florida Legislature goes on to define " seriously misleading " as it relates to errors or omissions in naming the debtor in the second and third subsections . Thus , while subsection ( 1 ) generally applies to errors or omissions in financing statements , subsections ( 2 ) and ( 3 ) govern financing statements like those at issue in this case that contain errors or omissions in naming the debtor . See Fla . Virtual Sch . v . K12 , Inc ., 148 So . 3d 97 , 102 ( Fla . 2014 ) ( explaining that " a specific statute will control over a general statute ").
1944 Beach Blvd ., LLC v . Live Oak Banking
Co ., 2022 Fla . LEXIS 1298 at * 8-9 .
The problem in Florida is the current registry permits a search of filings , however , the registry does not have the option of using a “ standard search logic .” Id . at * 11 . The Florida Supreme Court found that the meaning of “ standard search logic ” within the industry is one that “‘ produces an unambiguous identification of hits .’” Id . ( quoting Kenneth C . Kettering , Standard Search Logic under Article 9 and the Florida Debacle , 66 U . Miami L . Rev . 907 , 913 ( 2012 )). Florida ’ s Secured Transaction Registry on the other hand “ returns a list of twenty names starting with the name that most closely matches the name entered . That list of names is but a point from which the user can navigate forward and backward through all of the names indexed in the Registry .” Id . at * 11-12 . Because Florida ’ s registry does not provide a party
PBCBA BAR BULLETIN 8 with a finite list of hits , the misnomer becomes “ seriously misleading ” and the zero-tolerance rule of Fla . Stat . § 679.5061 ( 2 ) applies .
What does that mean in bankruptcy ? In NRP Lease Holdings , LLC , that meant the lender failed to perfect its lien prepetition and under 11 U . S . C . 544 ( a ), granting the trustee ( or debtor in possession ) the status of a hypothetical lien creditor who may avoid any lien that is not properly perfected under state law as of the petition date , the lender had nothing more than an unsecured claim . 2022 U . S . App . LEXIS 27330 at * 11- 12 . Additionally , for debtors contemplating bankruptcy , this ruling may impact the decision to file , because any attempt to correct a UCC-1 Financing Statement with the debtor ’ s incorrect name may be subject to avoidance if done within 90-days of the petition date .
This article was submitted by Jason S . Rigoli , Furr and Cohen , P . A ., 2255 Glades Road , Suite 419A , Boca Raton , FL 33431 , jrigoli @ furrcohen . com