Are They Really Safe?

States Build Safe Harbors for
Individual Debtor Names

Tennessee and Nebraska recently joined Texas in introducing legislation designed to build a safe harbor in the current sea of uncertainty that surrounds the correct name of a debtor who is an individual.  Unfortunately, each state has charted a unique course.  Texas said that the correct name of an individual may be the name as given on the individual’s state issued driver’s license.  Tennessee said that the correct name may be the name as given on the individual’s state issued driver’s license, or birth certificate, or social security card, or a variety of other IDs.  Not to be out done in the race to build a port in the storm, Nebraska said that the financing statement is sufficient if it merely indicates the debtor’s correct last name.  So what does this mean to me as a filer and a searcher?  Some believe that these safe harbors help filers and hurt searchers.

However, what hurts searchers also hurts filers because filers typically search before and after they file.  If a lender files under a safe harbor name (individual’s current ID), the lender will still need to search under other names because past filings under other names used by the individual may also be deemed to be correct in addition to the safe harbor name.  So, perhaps these safe harbors are not really that safe after all – time will tell but you shouldn’t remove your life jacket.  Considering the possible confusion offered by the Texas and Tennessee approaches, the Nebraska approach is simple but completely unworkable.

If all the filer needs to do is get the last name right then searchers will be forced to search by last name only to reflect every financing statement that matches the last name without any regard to an individual’s first or middle name.  So, instead of reviewing a couple of filings related to Robert Johnson, a searcher will be required to review a few thousand.  To stay out of this sea of uncertainty that requires safe harbors, maybe a better idea is to require that the individual form a registered entity.