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Friday, February 7, 2014
SB2149: Combat Fraudulent Liens and Mortgage Filings
By Sen. Sam Slom @ 9:13 PM :: 4628 Views :: Hawaii State Government, Law Enforcement

Hawaii legislators to hear a bill to combat fraudulent liens and mortgage filings

Hawaii legislators set to hear a bill to combat fraudulent lien filings on February 11, 2014, at 9:30 a.m. in room 229 at the Hawaii Capitol in a joint committee session of Commerce and Consumer Protection and Judiciary and Labor.  The public is urged to get involved and submit testimony.

News Release from Office of Senator Sam Slom, February 7, 2014

HONOLULU—Senator Slom says “Fraudulent liens are a growing problem that adversely affect Hawaiian residents, especially homeowners. The practice has been called "paper terrorism" and should be corrected now. This is one thing we can and should do. ”

Fraudulent lien filings are an ever increasing problem in states and counties across the United States. Often victims of these filings will be forced to expend tens of thousands of dollars on lawyers and court fees to remedy the fraudulent filing. All too often the victims too will be frustrated in the sale and purchases of their homes. Senator Slom has introduced SB2149 to make it easier and less expensive for victims of these crimes to remove a fraudulent lien or reinstate a valid lien. Effectively, it is a simple process administered by the Lieutenant Governor (Hawaii's version of a Secretary of State). The bill amends the Uniform Commercial Code, providing for a sworn statement to be filed with the office of the Lieutenant Governor and notice to be given to the person who initially filed the lien or removed a lien, before any action is taken to remedy the filing or release. The civil damages for filing a fraudulent lien is up to $10,000 or actual costs plus attorneys' fees and court costs.

Well after this proposed bill was initially drafted by the Senate Minority, 3 people in Hawaii were indicted for fraudulent mortgage satisfactions (January 9, 2014 – "...the trio obtained releases of more than $4.5 million in mortgages and other liens against the properties, then turned around and sold the properties for a total of more than $3.3 million." (See bizjournals article Jan 9, 2014) or (Hawaiinewsnow.com 1/8/2014)

You can picture the above scenario easily: Bad Guy owes a fortune on his house in Hawaii.  The bank has a standard mortgage lien on his house.  Bad Guy suddenly decides that the laws of the U.S. no longer apply to him – particularly the ones that involve paying his mortgage bills.  So, he files the paperwork needed to release the lien on his home.  The recorder of deeds is powerless to make the determination if the release of lien is valid.  They are, by statute, a rubber stamp.  The lien is released.  Then, Bad Guy can sell the house to an unsuspecting purchaser and the title search shows that there is no lien on the house.  Meanwhile, the bank’s collateral is gone and they can’t foreclose on the properties.

Senator Slom states "Not only is it costing homeowners and purchasers money to remedy these fraudulent filings, but it is costing title companies, banks and insurance companies significant amounts each year for an ever increasing problem."

Paper liens are often used as a weapon. (New York Times article - 2013/08/24 - Wage battle with liens) In Hawaii this weapon to intimidate or harass has been used against at least one U.S. District Court Judge in the District of Hawaii in the past. Various FBI media releases report fraud relating to mortgages is increasing. Some recent examples of fraudulent lien statement filings include: 2010, Michigan, a 61 year old man was sentenced for 63 months jail for filing a fraudulent lien statement to retaliate against a federal judge. See (FBI press release 2010) ; November 2012: A federal grand jury sitting in Chicago, Illinois, has returned a 12-count felony indictment against Chicago resident Cherron Marie Phillips for filing false liens against the real property of a dozen federal employees. (FBI 2012 press release) ; May 2013, Washington State, harassing fraudulent lien statements resulted in long prison terms for 2 men. (FBI press release WA 2013) Filing false liens has previously described as "paper terrorism". (www.law.com)

Senator Slom has also introduced SB2148 which, if passed, would make it a criminal offense to file a fraudulent lien statement. SB2148 A conviction of filing to harass a government official or judge is a class B felony (up to 10 years in jail), and to harass a member of the public is a class C felony (up to 5 years in jail). A hearing in committee has not been scheduled by the chairpersons to date. SB2148 was referred to CPN and JDL. Many other states have laws and civil penalties for fraudulent financial statement filings, a.k.a. fraudulent lien or mortgage filings. See NCSL list.

In the meantime, SB2149 is set for hearing on February 11, 2014, 9:30 a.m. in Conference room 229 at the Hawaii State Capitol.

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Text, Status: SB2149

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