Relating to the filing of a fraudulent financing statement in relation to certain secured transactions; authorizing the imposition of a fee.
CriticalImmediate action required
Medium Cost
Effective:2025-09-01
Enforcing Agencies
Secretary of State (Administrative termination of liens) • District Courts (Expedited hearings for contested filings)
01
Compliance Analysis
Key implementation requirements and action items for compliance with this legislation
Implementation Timeline
Effective Date: September 1, 2025
Compliance Deadline:July 1, 2025 (Internal mailroom and legal intake protocols must be tested and active *before* the law goes live to catch early notices).
Agency Rulemaking: The Secretary of State (SOS) must promulgate two critical forms by Sept 1, 2025: the *Affidavit of Impermissible Filing* (for debtors) and the *Notice of Regulated Lending Institution Status* (for banks/insurers). Expect a "regulatory gray zone" in August 2025 where the law is imminent but forms are unpublished.
Immediate Action Plan
1.Update Mail Handling: Establish a "Red Alert" protocol for any Certified Mail referencing UCC filings or affidavits; these must reach Legal within 24 hours.
2.Determine RLI Status: obtain a formal legal opinion on whether your entity qualifies as a "Regulated Lending Institution" under Sec. 9.5185(r). This determines whether you can fix a termination with a form or if you must file a lawsuit.
3.Revise Loan Docs: Insert specific default language regarding the misuse of the Section 9.5185 affidavit process in all new originations starting Q1 2025.
4.Review E&O Insurance: Confirm your policy covers administrative errors resulting in the loss of security interest perfection.
Operational Changes Required
Contracts
Default Clauses: You must amend standard loan agreements to define the filing of a false or groundless *Affidavit of Impermissible Filing* by the borrower as an immediate Event of Default.
Indemnification: Expand indemnification clauses to explicitly cover legal fees and costs associated with defending against administrative challenges under Texas Business & Commerce Code Section 9.5185.
Hiring/Training
Mailroom Protocols: Front-line staff must be trained to flag Certified Mail containing specific keywords (e.g., "impermissible," "fraudulent," "affidavit") for immediate escalation to Legal.
Legal/Compliance: In-house counsel must be trained on the bifurcation of remedies:
Regulated Lenders (Banks/Insurers): Must be trained to file the *Notice of Regulated Lending Institution Status* within 90 days of a termination.
Non-Regulated Lenders (Private Equity/Factors): Must be prepared to file a District Court petition within 90 days to preserve the lien.
Reporting & Record-Keeping
Regulated Lending Institutions (RLIs): Prepare a standing file proving your licensure status (e.g., banking charter, insurance license) to attach to SOS filings if your liens are attacked.
Audit Trails: Maintain rigid documentation of lien validity and payoff disputes. If a debtor claims a lien is "groundless" because of a disputed payoff, you need immediate access to the ledger to refute the affidavit.
Fees & Costs
New Penalties: The civil penalty for filing a fraudulent financing statement has doubled to the greater of $10,000 or actual damages.
Litigation Budget: Non-regulated lenders must budget for potential District Court filing fees and counsel costs to defend valid liens against fraudulent administrative termination.
Strategic Ambiguities & Considerations
The "Ministerial" Review: While the Fiscal Note implies the SOS will review affidavits for a "reasonable basis," the statute mandates the SOS "shall" file the termination if the form is technically correct. Do not rely on the SOS to police fraud. Assume all properly formatted affidavits will result in lien termination unless you intervene.
Definition of "Regulated Lending Institution": Section 9.5185(r) is broad. Fintechs, SPVs, and private credit funds that partner with banks but lack their own direct licensure may fall outside the "safe harbor." If your status is ambiguous, you must operate as a Non-Regulated Lender and prepare to litigate.
"Groundless" vs. "Disputed": The law penalizes "groundless" filings. It does not clearly distinguish between a fraudulent lien and a legitimate dispute over whether a debt was fully satisfied. Debtors may weaponize this ambiguity to force lien releases during payoff disputes.
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The Uniform Commercial Code (UCC) financing statement system is vital to extending credit for both individuals and businesses in Texas. Unfortunately, this system can be exploited by fraudulent or malicious filers�recently so-called "sovereign citizens" have increasingly begun filing fraudulent UCC-1 financing statements to harass their targets or commit fraud. Since most victims only discover these false filings when they seek credit, the delay can hamper home loans, business lines of credit, and other crucial financing. Under current law, Texans have only one remedy for clearing these fraudulent filings: filing suit in civil court, a process that is time-consuming and expensive. This gap in Texas law weakens the integrity of the UCC system, discourages legitimate investment, and negatively impacts businesses and individuals.
S.B. 2221 seeks to address these abuses by creating a streamlined administrative mechanism to remove fraudulent or baseless UCC-1 filings through the Office of the Secretary of State (SOS). Modeled after similar laws in at least eight other states, the proposed framework allows victims to file an affidavit (under penalty of perjury) affirming the invalidity of the filing. SOS would then terminate the fraudulent UCC-1 after a set period unless the filing's validity is proven through expedited court review. This ensures legitimate creditors are protected while offering a swift and cost-effective tool for Texans to clear their names. By closing loopholes and facilitating an efficient means to combat fraudulent filings, S.B. 2221 helps safeguard consumer rights, business interests, and the overall reliability of the state's UCC system.
As proposed, S.B. 2221 amends current law relating to the filing of a fraudulent financing statement in relation to certain secured transactions and authorizes the imposition of a fee.
SECTION 1. Amends Section 9.5185, Business & Commerce Code, as follows:
Sec. 9.5185. FRAUDULENT FILING. (a) Makes no changes to this subsection.
(b) Provides that a person who violates Subsection (a) (relating to prohibiting a person from intentionally or knowingly presenting for filing or cause to be presented for filing a financing statement that the person knows contains certain falsehoods) is liable to a person injured by the violation for certain costs, including the greater of $10,000 or the actual damages caused by the violation.
Deletes existing text providing that a person who violates Subsection (a) is liable to the owner of property covered by the financing statement for certain costs, including the greater of $5,000 of the owner's actual damages.
(c)-(d) Makes no changes to these subsections.
(e) Authorizes a person identified as a debtor in a financing statement that the person believes was not permitted to be filed under certain provisions of the Business & Commerce Code or was otherwise filed in violation of Subsection (a), under penalty of perjury, to file an affidavit stating the impermissibility of the statement with the filing office in which the statement was filed. Requires the secretary of state to make available a form affidavit for use under this subsection. Requires the filing office to reject an affidavit filed under this subsection if the affidavit is incomplete; the affidavit is prohibited under Subsection (q); or the filing office believes in good faith that the affidavit was filed without a reasonable basis or with the intent to harass or defraud.
(f) Requires the filing office, on receipt of an affidavit filed under Subsection (e), to promptly file a termination statement with respect to the financing statement identified in the affidavit. Requires that the termination statement indicate that the statement was filed under this section. Requires that a termination statement filed under this subsection, except as provided by Subsections (i) and (k), be effective until the 30th day after the date the statement is filed.
(g) Requires the filling office, on the same day that the office files a termination statement under Subsection (f), to send to each secured party of record identified in the financing statement a notice that the termination statement has been filed. Requires that the notice be sent by certified mail, return receipt requested, to the mailing address provided for the secured party of record in the financing statement.
(h) Authorizes a secured party of record identified in a financing statement for which a termination statement has been filed under Subsection (f) to bring an action against the person who filed the affidavit under Subsection (e) seeking a determination of whether the person who filed the financing statement was entitled to file the statement. Requires that an action under this subsection have priority on the court's calendar and proceed by expedited hearing. Requires that the action be brought in the district court in the county where the filing office in which the financing statement was filed is located. Requires that an action under this subsection be filed not later than the 60th day after the date on which the termination statement becomes effective.
(i) Authorizes a court, in an action brought under Subsection (h), to order, in appropriate circumstances, preliminary relief, including an order preventing the termination statement from taking effect or directing a party to take action to prevent the termination statement from taking effect. Provides that, if the court issues an order under this subsection, and the filing office receives a certified copy of the order before the termination statement takes effect, the termination statement is prohibited from taking effect and the filing office is required to promptly file an amendment to the financing statement indicating that an order has prevented the termination statement from taking effect.
(j) Provides that, if an order issued under Subsection (i) to prevent the termination statement from taking effect ceases to be effective due to a subsequent order or final judgment of a court, and the filing office receives a certified copy of the subsequent order or final judgment, the termination statement is required to immediately become effective on receipt of the certified copy by the filing office, and the filing office is required to promptly file an amendment to the financing statement indicating that the termination statement is effective.
(k) Provides that, if a court determines in an action brought under Subsection (h) that the financing statement was filed by a person entitled to file the statement, and the filing office receives a certified copy of the court's final judgment or order before the termination statement takes effect, the termination statement is prohibited from taking effect and the filing office is required to promptly remove the termination statement and any amendments filed under Subsection (i) from its public records.
(l) Requires the filing office, if a court determines in an action brought under Subsection (h) that the financing statement was filed by a person entitled to file the statement, and the filing office receives a certified copy of the court's final judgment or order after the termination statement takes effect, to promptly file an amendment to the financing statement indicating that the financing statement has been reinstated.
(m) Provides that a financing statement reinstated under Subsection (l) is effective from the initial filing date and is considered to have never been ineffective against all persons and for all purposes except against a purchaser of the collateral described in the financing statement who gave value in reliance on the termination statement.
(n) Provides that, if the period of effectiveness of a financing statement reinstated under Subsection (l) would have lapsed during the period of termination, the secured party of record is authorized to file a continuation statement not later than the 30th day after the financing statement is reinstated, and the continuation statement is required to have the same effect as if it had been filed during the six-month period prescribed by Section 9.515(d) (relating to providing that a continuation statement is authorized to be filed only within certain timeframes).
(o) Requires the filing office to collect a fee for the filing of an affidavit under Subsection (e) in an amount sufficient to recover the cost of administering this section. Prohibits the filing office from returning a fee paid for filing a financing statement identified in the affidavit, even if the financing statement is subsequently reinstated.
(p) Prohibits the filing office or an employee of the filing office from being subject to liability for the termination or amendment of a financing statement in the lawful performance of the duties of the filing office under this section.
(q) Prohibits an affidavit from being filed under Subsection (e) with respect to a financing statement filed by or on behalf of a regulated lending institution. Defines "regulated lending institution."
SECTION 2. Amends Section 9.510(c), Business & Commerce Code, to create an exception under Section 9.5185(n).
SECTION 3. Amends Section 9.515(d), to create an exception under Section 9.5185(n).
Honorable Charles Schwertner, Chair, Senate Committee on Business & Commerce
FROM:
Jerry McGinty, Director, Legislative Budget Board
IN RE:
SB2221 by Parker (Relating to the filing of a fraudulent financing statement in relation to certain secured transactions; authorizing the imposition of a fee.), As Introduced
Estimated Two-year Net Impact to General Revenue Related Funds for SB2221, As Introduced: a negative impact of ($2,607,626) through the biennium ending August 31, 2027.
The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill.
General Revenue-Related Funds, Five- Year Impact:
Fiscal Year
Probable Net Positive/(Negative) Impact to General Revenue Related Funds
2026
($1,927,768)
2027
($679,858)
2028
($679,858)
2029
($679,858)
2030
($679,858)
All Funds, Five-Year Impact:
Fiscal Year
Probable Savings/(Cost) from General Revenue Fund 1
Change in Number of State Employees from FY 2025
2026
($1,927,768)
6.0
2027
($679,858)
6.0
2028
($679,858)
6.0
2029
($679,858)
6.0
2030
($679,858)
6.0
Fiscal Analysis
The bill would amend the Business & Commerce Code related to fraudulent Uniform Commercial Code (UCC) financing statements filed with the Secretary of State (SOS) and county clerk offices. The bill would permit a debtor named in a UCC financing statement that the debtor believes was impermissibly or fraudulently filed to submit an affidavit to that effect.
The bill requires the office in which an affidavit is filed to review whether the affidavit was submitted without a reasonable basis or with the intent to harass or defraud. For valid affidavits, the filing office would be required to issue a termination statement regarding the applicable financing statement and send notice to each secured party of record by certified mail.
Methodology
Based on the agency's experience with processing UCC financing statements, the SOS estimates that it will receive at least 600 affidavits each year as well as experience an increase in public inquiries regarding procedures for UCC submissions and challenges of fraudulent filings. The SOS estimates that the agency would require 6 new FTEs to carry out the provisions of this bill related to administrative review and notification and providing additional information to inquiries.
According to the agency, these new statutory responsibilities would require the following positions: three Program Specialist III ($62,136 per year), one Attorney IV ($124,606) per year, and two Attorney II ($102,980). Benefits and associated expenses for these positions would be $162,884 per fiscal year with an additional $47,910 in setup expenses in fiscal year 2026.
According to the Office of Court Administration, no significant fiscal impact to the state court system is anticipated.
According to the Office of the Attorney General, any costs incurred by the agency could be absorbed within existing resources.
According to the Comptroller of Public Accounts, the number and amount of fees that could be collected as a result of the bill are unknown; therefore, the fiscal implications cannot be determined.
It is assumed that any impact on state correctional populations or on the demand for state correctional resources would not be significant.
Technology
According to the SOS, modifications to the UCC information management system required by the bill would take one to two months for discovery to evaluate the scope of the required modifications, three months to develop and test system changes, and one month to support the modified system upon release. The agency estimates a total cost of $1,200,000 for these modifications.
Local Government Impact
In certain cases, the bill would result in fraudulent UCC affidavits being filed in county clerk offices. These requirements are not expected to have a significant impact to local jurisdictions.
It is assumed that any fiscal impact to units of local government associated with enforcement, prosecution, supervision, or confinement would not be significant.
Source Agencies:
212 Office of Court Administration, Texas Judicial Council, 302 Office of the Attorney General, 304 Comptroller of Public Accounts, 307 Secretary of State
LBB Staff:
JMc, RStu, LCO, GP
Related Legislation
Explore more bills from this author and on related topics
SB2221 fundamentally shifts the burden of proof in UCC disputes from the debtor to the creditor, effective September 1, 2025. The law creates a "fast-track" administrative process allowing the Secretary of State to extinguish liens based on a debtor's affidavit, bypassing the court system initially. Secured creditors—particularly non-bank lenders—face the immediate risk of losing lien perfection and priority if they fail to respond to certified notices within strict 30-day windows.
Q
Who authored SB2221?
SB2221 was authored by Texas Senator Tan Parker during the Regular Session.
Q
When was SB2221 signed into law?
SB2221 was signed into law by Governor Greg Abbott on June 20, 2025.
Q
Which agencies enforce SB2221?
SB2221 is enforced by Secretary of State (Administrative termination of liens) and District Courts (Expedited hearings for contested filings).
Q
How urgent is compliance with SB2221?
The compliance urgency for SB2221 is rated as "critical". Businesses and organizations should review the requirements and timeline to ensure timely compliance.
Q
What is the cost impact of SB2221?
The cost impact of SB2221 is estimated as "medium". This may vary based on industry and implementation requirements.
Q
What topics does SB2221 address?
SB2221 addresses topics including business & commerce, business & commerce--general, civil remedies & liabilities, courts and courts--district.
Legislative data provided by LegiScanLast updated: November 25, 2025
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