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A Debtor by Any Other Name: New Identification Guidance for Financing Statements

The requirements of California real estate law change regularly. That is one of the many reasons it is important to consult with a licensed an experienced real estate attorney before entering into any sort of commercial real estate transaction. One such recent change has to do with the way in which an individual debtor is supposed to be identified on a financing statement.

Changes to Identification Requirements on Financing Statements

The change in the law comes from Assembly Bill 1858. This bill amended and added to Article 9 of the state’s commercial code that relates to secured transactions. The governor signed the bill in August of this year, and it will go into effect on January 1, 2015. This change in the law adopts what is called the “driver’s license rule,” or “Alternative A.” What it means is that if an individual debtor has an unexpired driver’s license or non-driver identification card as issued by the Department of Motor Vehicles (DMV), then a financing statement under Commercial Code section 9503 only properly identifies that debtor if it provides the name of the individual as indicated on the driver’s license or state ID. If a debtor does not have either of these forms of identification, then the proper way to identify him or her is to provide the debtor’s surname and first personal name. If a debtor principally resides out of state, then the rules do not apply.

Why Does this Change Matter?

Before the change, California’s Uniform Commercial Code said that the financing statement should include the “name” or the “surname and first personal name” of the debtor. However, there was absolutely nothing in the law that said how one was supposed to determine what that name was. This led to a level of chaos since many people use different names for different purposes. Married and divorced people often change their names for some purposes but not for others. People use nicknames like “Bill” or “Will,” even in professional settings, when their birth certificate has a more formal name like “William.” Transgendered individuals regularly begin using a new name as part of the transitioning process, and sometimes they start doing so before seeking any sort of official name change. For all of these reasons, different documents can reflect different names for the same individual debtor, and the old statute did not give any guidance as to which of those documents could be relied upon.

This new law answers that question–the most recent non-expired identification issued by the DMV is what governs. This will work well for lenders because existing law gives lenders the ability to verify this type of information. The federal Driver’s Privacy Protection Act of 1994 made an exception for this sort of information gathers, and California law allows disclosure of information to verify that a person has unexpired identification and what his or her name is on that identification.

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