The secretary of state's office said Tuesday that it temporarily misplaced records of about 20,000 liens against commercial property in California, resulting in lenders receiving incomplete information about the credit-worthiness of potential borrowers.
The records--temporarily lost because of a computer foul-up--have since been retrieved and restored, said Don Swails, an assistant division chief in the secretary of state's office in Sacramento.
In the meantime, the office has issued to lenders as many as 40,000 certificates listing liens against the assets of commercial borrowers--primarily businesses and professionals such as lawyers and doctors, Swails said.
State officials don't know how many of those certificates were erroneous, he said. But it has clearly inconvenienced many lenders and financial research firms.
"It has at least doubled our workload," said Richard E. Hall, general manager of UCC Network, a Sacramento firm that researches lien histories for lenders.
Hall said that his office has had to check financial records of borrowers three and sometimes four times, because at least 30% to 50% of certificates requested by his firm in the past two months were probably incomplete.
It is not clear whether the foul-up will subject the state to liability if lenders made loans based on incorrect information and those loans subsequently sour.
Typically, lenders making loans secured by assets such as real estate will seek to know if liens have been placed against those assets. The type of loans affected by the foul-up are business loans because under the state's Uniform Commercial Code, records of liens issued against commercial assets such as business equipment, accounts receivable or inventory are kept at the secretary of state's office. Lenders may obtain the information for a fee.
Records of liens against homes and furniture, which could affect the granting of mortgages, are filed with county recorders' offices. Records of liens against personal vehicles, which could affect granting of auto loans, are kept at the state Department of Motor Vehicles. Neither of those agencies was affected by the computer mishap.
Swails said the affected liens were issued in November, December and possibly January. The office suspended issuance of certificates about two weeks ago when the problem was discovered, he said. Issuance of certificates should resume today, but it had not yet been decided if the office can reissue new certificates to all lenders who believe they have received erroneous ones, he said. The office already has a 30-day backlog in processing requests for new certificates, he said.
"It's a real headache," Swails said.
The office was hit by a similar computer malfunction in 1986, but it was not nearly as severe as the more recent problem, Swails said. He blamed the latest foul-up on a computer designed in the 1960s. A new computer system is scheduled to begin operating on a test basis at the end of March, he said.