Wisconsin Lawyer
Vol. 79, No. 4, April 2006

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New identity theft law is a landmine for real estate lawyers

A new law enacted by the Wisconsin Legislature prohibits the recording of documents with the register of deeds that display a person's Social Security number. The law is intended to prevent one of the means of stealing a person's identity. If a document is recorded that contains a Social Security number, the person who drafted it may face a damage claim with no cap. All attorneys who deal with real estate should change their practices, and recommend that their clients change their practices, immediately to comply with this new law. 2005 Wisconsin Act 139 became effective as law on March 31, 2006, and applies to all documents presented for recording on or after that date. The law amends Wis. Stat. Section 59.43 and provides that:

• Wisconsin registers of deeds are prohibited from recording documents containing an individual's Social Security number; and
• if a register of deeds records a document that contains an individual's Social Security number, the drafter of the document can be liable for any actual damages that occur as a result of recording.

Currently, many lenders' mortgage forms include the borrowers' Social Security numbers. 2005 Wisconsin Act 139 is targeted to stop this practice. However, the law applies to all recorded documents.

If a person's Social Security number appears on an instrument submitted for recording, it will likely be rejected by the register of deeds. This rejection may include all documents accompanying the instrument displaying the Social Security number. Most Wisconsin registers of deeds will return all documents for a transaction (deed, purchase money mortgage, easements or restrictions) if any one document is not considered recordable. As a result, the inclusion of a Social Security number on a mortgage may delay the recording of not only the mortgage, but also the borrower's deed, in a purchase transaction. This delay could range from a few days to several months.

Even a short delay in recording may create significant problems for attorneys, lenders, and borrowers. If a deed or mortgage is not recorded immediately, liens or encumbrances may be recorded against the property before it is recorded. In addition, if a borrower declares bankruptcy within 90 days of a loan closing and the mortgage is not recorded within 30 days of closing, the trustee has the power to have the mortgage declared void as a preferential transfer. Cases involving the failure to record a mortgage within 30 days are relatively common now, and are likely to become more so now that this law is effective.

The law also provides that, if a register of deeds records a document containing an individual's Social Security number, the drafter of the instrument can incur liability for actual damages due to identity theft resulting from the recording of the document. It is not yet clear how this provision will operate. However, while the law allows a victim of identity theft to recover damages from a drafter, it does not give the drafter any right to pursue the perpetrator of the theft. Attorneys drafting recordable documents could become the sole source of recovery for the total actual damages attributable to identity theft arising from the recording of a document containing a Social Security number. There is no damage cap under the law.

If a person has his or her identity stolen and recorded documents disclose the person's Social Security number, the attorney who drafted the documents could well face either a malpractice or a damage claim. To avoid this result, attorneys dealing with real estate should institute practices that ensure that documents they draft do not contain Social Security numbers. Attorneys also may wish to notify their clients that Social Security numbers are not permitted on recorded documents in Wisconsin.

Wisconsin Lawyer