BILL ANALYSIS
AB 121
Page 1
Date of Hearing: March 17, 2009
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 121 (Hernandez) - As Introduced: January 15, 2009
SUBJECT : JUDGMENT LIENS: CONTINUATION STATEMENTS
KEY ISSUE : IN ORDER TO PROVIDE ANOTHER OPTION FOR JUDGMENT
LIENHOLDERS, SHOULD A JUDGMENT LIEN BE RENEWABLE PRIOR TO THE
FIVE YEAR EXPIRATION OF THE LIEN?
SYNOPSIS
This bill, sponsored by the Business Law Section of the State
Bar, is identical to last year's AB 3013 (Levine) which was
summarily vetoed by the Governor without regard to its merit.
This bill allows a judgment lien to be renewed prior to the
five-year expiration of the lien. According to the author,
current law permits a judgment creditor to record a judgment
with the Secretary of State to create a lien on certain personal
property assets of the judgment debtor lasting for five years.
However, current law does not permit the judgment lien to be
continued through the filing of a continuation statement,
resulting in a loss of priority at the end of five years. Thus,
according to the author, a lien holder must choose to liquidate
the property within the initial five years, refile the lien and
lose priority, or allow the lien to lapse. In certain
instances, however, it may prove more beneficial to the lien
holder to allow a property, such as a business, to avoid
liquidation and continue producing goods because it might
produce more value over a period of time. This bill would
therefore allow the judgment lien to retain priority over
later-filed liens and continue for successive five year periods,
as needed, until the judgment has been paid in full.
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SUMMARY : Allows a judgment lien to be renewed prior to the five
year expiration of the lien. Specifically, this bill :
1)Defines "continuation statement" to mean an amendment of a
notice of judgment lien that does both of the following:
a) Identifies, by its file number, the initial notice of
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judgment lien to which it relates; and,
b) Indicates that it is a continuation statement for the
identified notice of judgment lien.
2)Provides that, in order to extend the judgment lien for an
additional five years, a continuation statement may be filed
only within the six-month period prior to the expiration of
the statutory five-year period for a judgment lien.
3)Provides that succeeding continuation statements may be filed,
as specified, indefinitely.
4)Provides that the judgment lien created by this measure is
extinguished at the earliest of the following to occur:
a) The money judgment is satisfied;
b) The period of enforceability of the judgment terminates;
or,
c) The judgment lien is terminated or released.
5)Provides that if the judgment lien is extinguished, the
judgment creditor shall file a statement of release within 20
days after the judgment creditor receives an authenticated
demand from the judgment debtor. Defines "authenticated
demand" to mean either a signed written demand or an executed
demand delivered electronically, as specified.
6)Provides that if a judgment creditor does not file a statement
of release, the person who made the demand may apply to the
court on noticed motion for an order releasing the judgment
lien and, upon presentation of evidence to the satisfaction of
the court, the court shall order the release of the judgment
lien. Provides that notice of the motion shall be filed in
the county where the judgment was rendered.
7)Makes technical and clarifying amendments.
EXISTING LAW :
1)Allows a judgment creditor to record a judgment with the
Secretary of State to create a lien on certain personal
property assets of the judgment debtor lasting five years.
(Code of Civil Procedure Section 697.510.)
2)Provides that a filed financing statement is effective for a
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period of five years after the date of filing. Furthermore,
the financial arrangement can continue indefinitely as long as
the continuation statement is filed within six months before
the date the financing statement would otherwise expire.
(Commercial Code Section 9515.)
COMMENTS : This bill would allow a judgment lien to be renewed
prior to the five year expiration of the lien. According to the
author, this bill is necessary to modify aspects of the current
lien filing process that make it difficult for creditors with
judgment liens to maintain their present lien status on personal
property. The author states:
California Code of Civil Procedure section 697.510
currently permits a judgment creditor to file a lien on
certain kinds of personal property of the judgment debtor,
by recording a notice of judgment lien in the office of the
California Secretary of State. This allows a judgment lien
to have priority over a voluntary or involuntary lien filed
at a later date. However, the judgment lien continues only
for a period of five years from the date of filing. It
then expires and cannot be renewed. Rather, it can only be
re-filed, which creates a new lien, effective as of the
date of the new filing.
Voluntary liens, by contrast, can be renewed under the
Uniform Commercial Code every five years, provided that a
continuation statement is filed within six months prior to
the expiration of the original financing statement. The
effect is that after five years, a judgment lien creditor
loses priority to a later-filed voluntary lien, thus giving
the voluntary lien creditor an advantage over a judgment
lien creditor, even if the voluntary lien is a collusive
attempt to defeat the effects of a judgment lien.
AB 121 would amend existing law to permit the filing of a
continuation statement with the Secretary of State within
six months prior to the expiration of the original judgment
lien. The effect would be to allow the judgment lien to
retain priority over later-filed liens and continue for
successive five year periods, as needed, until the judgment
has been paid in full.
Because current law does not permit a judgment lien to be
extended past the statutory five-year period through the filing
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of a continuation statement, a judgment creditor may suffer loss
of priority in enforcing its lien after five years. In this
situation, according to the author, a lienholder is then faced
with the choice to liquidate the property within the initial
five-year period, refile the lien and lose priority, or allow
the lien to lapse. As the author explains, it may prove more
beneficial to the judgment creditor to allow some property (e.g.
a business) to continue to exist because it might produce more
value over a period of time than if it is liquidated.
Therefore, this measure would allow the lien to be continued for
a fee to be paid to the Secretary of State for the filing of the
continuation statement.
The Business Law Section of the State Bar of California, the
sponsor of the bill, explains that this bill is modeled after
existing statutory provisions governing the filing of financing
statements that document consensual lien agreements. The
sponsor explains that, in cases involving consensual liens when
a lending institution requires collateral for a monetary loan,
California law provides for a filed financing statement
documenting the agreement that remains effective for five years.
(Commercial Code Section 9515.) These provisions permit the
financing arrangement to be extended for an additional five
years.
PRIOR LEGISLATION : This bill is identical to last year's AB
3013 (Levine), which was one of many bills summarily vetoed by
the Governor without a stated objection.
REGISTERED SUPPORT / OPPOSITION :
Support
Business Law Section of the State Bar of California (sponsor)
Opposition
None on file
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334