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There is a bizarre, extrajudicial process impacting businesses, small and large, throughout California. Disgruntled individuals, often the “sovereign citizen” type, are filing fraudulent Uniform Commercial Code (“UCC”) Financing Statements (UCC 1) and Notices of Judgment Lien (JL 1) on the publicly viewable California Secretary of State (“CA SOS”) UCC database.
Background
Every state in the U.S. has a designated UCC office, usually the Secretary of State. The UCC office serves as the central and standard location for UCC filings. This article solely discusses how to tackle wrongful/unlawful UCC filings in California.
Generally, a UCC 1 is a document that gives notice to the public that a creditor has a security interest in a debtor's property (such as inventory, equipment, and accounts receivable). The creditor's security interest (and basis for a UCC 1 filing) typically arises from a secured transaction, such as a loan secured by a business's assets (e.g., a loan to a motor vehicle dealership secured by the dealership's motor vehicle inventory). Creditors file UCC Financing Statements to perfect their interest and establish a public record of priority in the case of a default or bankruptcy.
As discussed below, California law requires the debtor to expressly authorize the creditor to file a UCC 1. This authorization does not appear on UCC 1 itself. Rather, it is often stated in the parties' underlying written agreement(s).
The CA SOS (contrary to other states) also permits a judgment creditor to file a Notice of Judgment Lien (JL 1) on the CA SOS UCC database. Unlike a UCC 1, a JL 1 is a non-consensual filing. A JL 1 is a legal enforcement mechanism that provides notice to the public that the creditor has won a lawsuit and obtained a court-signed judgment against the debtor.
A wrongfully filed UCC 1 or JL 1 can have profound effects on a business. A UCC 1 can hinder credit-seeking activity by signaling that the business's assets are already pledged as collateral, or that the business enters into questionable secured transactions. A JL 1 can falsely indicate that the business has lost a lawsuit brought by the “creditor.”
Unauthorized CA SOS UCC Filings
A person may file a UCC 1 with the CA SOS only if the debtor has authorized the filing. ( Cal. Com. Code § 9509.) Similarly, a JL 1 requires the creditor to have obtained a judgment against the debtor. However, these legal protections do not stop disgruntled and self-proclaimed “sovereign” individuals from abusing the CA SOS UCC database given its lack of ‘gatekeeping' procedures to ensure that the filings are authorized by law or contract.
The CA SOS UCC Office's role is strictly managerial and ministerial. (See Cal. Code Regs. tit. 2, § 22600, et seq.) It reviews UCC filings for completeness. It does not verify whether a debtor authorized a UCC 1 filing or a judgment creditor actually obtained a judgment against the purported “debtor.” Thus, in theory, anyone can file a UCC 1 or JL 1 against anyone.
While a false filing has no legal effect, it is still viewable on the UCC database and broadcasts to the public that a “debtor” is indebted to a “creditor.” A Madison Law client recently discovered that a former customer filed a JL 1 falsely claiming that the customer had a judgment against it to the tune of $9 million. Another Madison Law client extended a loan to a customer, and that customer filed a UCC 1 falsely claiming that the client was indebted to the customer for the loan amount and that the customer had a lien on the client's inventory. Despite attempts to inform the CA SOS of the unauthorized UCC filings, the CA SOS stated it will not delete UCC 1's or JL 1's without an order or judgment from a California court.
Ways to Remove an Unauthorized CA SOS UCC Filing
Self-Help Remedies
As is always the case, a business can attempt to reason with the disgruntled customer to persuade them to remove the unauthorized/wrongful filing. After all, the “creditor,” whether actually a secured party, has the power to remove the filing.
The business can try to file a Financing Statement Amendment (UCC 3). A UCC 3 contains fields for the aggrieved “debtor” to terminate the UCC 1. However, a UCC 3 does not remove the UCC 1 from the CA SOS UCC database. It simply posts the UCC 3 as a new document in the UCC 1's file dropdown menu. Members of the public can still view the UCC 1 and would have to use their judgment to determine that the UCC 1 was wrongfully filed. The business's name would still be searchable as a “debtor” in the UCC database.
The business can try to file an Information Statement (UCC 5). A UCC 5 contains fields to claim that the UCC 1 “is inaccurate,” “was wrongfully filed,” or was “filed by a person not entitled to do so.” There is also a blank text box to indicate the claim's basis, where the business can explain in detail why the UCC 1 was unauthorized or wrongfully filed. However, like a UCC 3, a UCC 5 does not remove the UCC 1 or “debtor's” name from the UCC database.
In the case of a JL 1, only the judgment creditor or its authorized representative can remove the filing. Thus, other than attempting to reason with the individual, businesses are left with no other option than to take legal action.
Legal Remedies
Self-help remedies may put a band-aid on the situation, but they do not give rise to a court-ordered expungement of the wrongful filing or permit the aggrieved party to recover damages sustained from the wrongful filing. Thus, an effective option is to file a lawsuit against the “creditor.”
A publicly available document which falsely indicates a business is indebted to a “creditor” is by definition a defamatory statement. The business can therefore sue the “creditor” for defamation per se and trade libel. Wrongfully using the CA SOS, a legal procedure, can also constitute a cause of action for abuse of process. Most importantly, the business can sue for violation of Cal. Code Civ. Proc. § 765.010, which provides “[a] person shall not file or record, or direct another to file or record, a lawsuit, lien, or other encumbrance, including a notice of lis pendens, against another person or entity knowing it is false, with the intent to harass the person or entity…” A violation of Cal. Code Civ. Proc. § 765.010 opens the door to expungement of the wrongful filing, civil penalties in the amount of $5,000 ( Cal. Code Civ. Proc. § 765.040), and entitlement to recover costs and attorneys' fees incurred in litigating to remove the filing ( Cal. Code Civ. Proc. § 765.030).
While a lawsuit may take time and resources, it can be the most effective method to ensure the UCC filing is expunged in its entirety, and it can compensate the business for damages sustained from and litigation costs expended to expunge the filing.
The California Legislature has caught wind of this rising problem and is poised to increase the civil penalties under Cal. Code Civ. Proc. § 765.040 from $5,000 to $15,000, and permit the aggrieved debtor to recover three times the amount of court fees paid to expunge the lien under the Commercial Code. As of January 15, 2026, AB 501 is pending review by the Appropriations Committee.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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