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Q&A: Wed., Dec. 2 at 7:00 pm (Room 5)
Q&A: Tues. Dec. 8 at 7:00 pm (Room 5)
Q&A: Wed., Dec. 9 at 7:00 pm (Room 5)
Exam: Thurs., Dec. 10 at 8:30 am
– Exam: MC (30 questions—90 minutes), short
essay (60 minutes). Three hours total
– Permitted materials: only (1) statute volume; (2)
outline you prepared (or contributed to in a study
group)
– Open Laptop mode
Land vs. Personal Property
Assignment 22
Land-Related Interests, Fixtures,
and Accessions
Reference: Understanding Secured
Transactions Chapter 15
Recording/Filing Systems
• Art. 9 generally does not apply to transactions
that create a lien on land [§ 9-109(d)(11)]
– Voluntary lien on land arises by execution/delivery
of mortgage or deed of trust (akin to “attachment”)
– Lien on land is made enforceable vs. 3rd parties by
recording mortgage/deed of trust in land records
(akin to “perfection”)
• Exception in § 9-109(d)(11) for “fixtures” and
collateral covered by “fixture filings” (to which
certain Article 9 sections do apply)
LAND
PERSONALTY
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Problem 1
• Bank proposes to loan $500,000 to Steamer,
to be secured by a mortgage on 200 acres
– 100 acres is mature timber
– 70 acres is planted in corn
– 30 acres of Christmas trees (growing in rows)
• Would the Bank’s mortgage cover the
timber, the corn, and the Christmas trees?
• A mortgage granted to Bank will cover the trees, which
are part of the land
• In most states, a mortgage would also cover the crops (at
least if they are not fully grown), because they are part of
the land until they are “severed”
• But Bank can’t ignore Article 9
– The trees and corn can be removed (severed) from the land,
i.e., readily changed into personal property
– Further, Article 9 defines “timber to be cut and removed under
a conveyance or contract for sale” and “crops” as “goods” [§
9-102(a)(44)]
– Thus, Steamer could grant (or already have granted) a SI in the
timber and/or the corn under Article 9 to another creditor!
Priority: “Land” vs. “Article 9”
Land-Related Filings
• It is thus possible for conflicting interests in crops
or timber to arise under different bodies of law
• E.g., at the same time
• For an Art. 9 SI in timber to be cut (or minerals),
secured party must perfect by filing a land-related
UCC-1 filing in the land records in the county where
the land is located [§ 9-501(a)(1)(A)] (i.e., NOT in the
secretary of state’s office)
– Finance Co. could have an Article 9 SI in the timber
– Bank might have a mortgage on the land on which the
timber is growing (and thus a lien on the timber under
real estate law)
• How is such a priority conflict resolved?
– Note: filing must contain the legal description of the
land, so that it can be indexed (and thus be searchable) in
the land records [§ 9-502(b)(3)]
– Rationale: persons acquiring interests in land will look to
land records for evidence of conflicting interests!
2
Problem 1: Timber
• Priority between Bank (mortgagee) and Finance Co.
(assume it had an Art. 9 SI in the timber) will be
governed by real estate law (recording act)
– If Finance Co. had filed a land-related filing prior to
Bank’s mortgage, Finance Co.’s SI in the timber would
have priority over Bank’s interest in the timber
– If not, Bank’s recorded mortgage gives Bank priority over
Finance Co., assuming Bank didn’t have knowledge of
Finance Co.’s unrecorded interest (knowledge matters
under most real estate recording acts)
Problem 1: Corn
• Article 9 SI in crops is perfected by “central” filing of
UCC-1 (in Secretary of State’s office) [§ 9-501(a)(2)]
• Priority rule: a perfected Article 9 SI in crops takes
priority over the rights of an “encumbrancer” in crops
(e.g., the holder of a mortgage) [§ 9-334(i)], even if the
mortgage was recorded first (timing is irrelevant)
• Thus, if Bank expects priority vs. corn, it must (1)
search in UCC records for prior filings (SIs or ag liens)
against Steamer’s crops and (2) file UCC-1 covering the
corn crop in Secretary of State’s office
Christmas Trees: “Timber” or “Crops”?
Christmas Trees: “Timber” or “Crops”
• Rainier Nat’l Bank v.
Security State Bank
(Wash. 1990) (trees on
Christmas tree farm were
“crops”)
• If case law in the state
isn’t clear, Bank should
use “belt and
suspenders” approach
– Secured Party which had
perfected Article 9 SI in
all of debtor’s “crops”
took priority over prior-intime mortgage on land!
– E.g., Bank could record
mortgage (to establish
priority in land records),
and file UCC-1 covering
“crops” (to establish
priority in UCC records)
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Fixtures [§ 9-102(a)(41)]
• In some cases, a good may become so
“attached” or “affixed” to land that it
becomes part of the land under real estate
law (it becomes a “fixture”)
– Article 9 does not define when a good becomes
a “fixture”; instead, when a good becomes a
“fixture” is a question of state real estate law [§
9-334, cmt. 3]
Recording/Filing Systems
GOODS
AFFIXED
TO LAND
LAND
GOODS TO
BECOME
FIXTURES
PERSONALTY
The “Fixture” Rule
• Whether a good has become a “fixture”
depends upon several factors:
– (1) The degree of physical affixation to land
– (2) The degree to which the good is adapted to the
particular characteristics of the land
– (3) The intent of the annexor (did annexor intend
for the good to become a part of the land?)
Fixtures and Article 9
• If something that is “goods” becomes a fixture, it
becomes part of the land — and this means it would
be covered by a mortgage on the land
– But, before “affixation,” a SI in the goods could also
have arisen under Article 9
• § 9-334 resolves “Article 9 fixture secured party vs.
real estate mortgagee” priority disputes
• Also, after affixation, a fixture good can be removed
(and resume its “good”-ness as personal property)
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• Larson owns home, subject to
mortgage in favor of First Bank
(recorded back in 2012)
• March 2015: Larson buys a
furnace on credit from Putnam
Heating, which took SI in furnace
• April 1, 2015: furnace is
installed and becomes a fixture
under state law
• April 2, 2015: Putnam Heating
files a UCC-1 in Secretary of
State’s office covering furnace
• Larson is now in bankruptcy
Problem 2
Q1: Priority: First
Bank v. Putnam
Heating?
Q2: Priority:
Putnam Heating v.
Bankruptcy
Trustee?
Fixture Filing [§§ 9-102(a)(40),
9-502(b)]
• A “fixture filing” is a UCC-1 that covers goods
that are (or are to become) fixtures, and must:
– Indicate that it is to be filed in the land records;
– Contain legal description of land to which goods
are/will be affixed, and
– Provide name of record owner of the land
• Must be filed in local (recorder of deeds) office
Article 9 Fixture Secured Party v.
Land Mortgagee
• General rule: mortgagee has priority over an
Article 9 security interest in a fixture [§ 9-334(c)],
unless a § 9-334 exception applies
• None of the exceptions apply here, so First Bank
has priority over Putnam Heating as to furnace
– Problem: Putnam Heating didn’t make a “fixture
filing” to alert land-related creditors
Fixture Priority: Why It Matters
• If Putnam Heating (Article 9 fixture secured party)
has priority over First Bank (mortgagee), Putnam
Heating can remove the furnace and sell it (via
Article 9 sale procedures), even over the objection
of First Bank, the mortgagee [§ 9-604(c)]
• If First Bank’s mortgage has priority, Putnam
Heating cannot remove the furnace and sell it
over objection of First Bank
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Fixture SI v. Mortgage Lien
• § 9-334(e)(1): an Article 9 SI in a fixture that is
perfected by a fixture filing (on the land
records) will take priority over any mortgage
that is recorded after the fixture filing
– Rationale: fixture filing (in the land records) puts
land creditors on notice
• Problem 2: this exception wouldn’t help
Putnam Heating, b/c First Bank’s mortgage was
prior-recorded
PMSI Fixture Priority [§ 9-334(d)]
• A creditor holding a PMSI in a fixture is entitled
to priority over the mortgagee if:
– Debtor is the record owner of the land or is in
possession of the land, and
– The mortgage lien arose before the goods became a
fixture, and
– PMSI is perfected by a fixture filing before the goods
become a fixture or within 20 days thereafter
• Problem: Putnam Heating didn’t make a timely
fixture filing (it filed a regular UCC-1)
Article 9 Fixture Secured Party
vs. Lien Creditor/Trustee
• If Putnam Heating had made a timely fixture filing
in the land records (before furnace was affixed or
w/in 20 days thereafter), its PMSI in furnace
would’ve had priority over First Bank’s mortgage [§
9-334(d)]
– If Putnam Heating had priority, it could’ve removed the
furnace and sold it following default [§ 9-604(c)], even
over the objection of First Bank
– But, because Putnam Heating didn’t make a fixture filing
within the 20-day window (or at all), First Bank’s
mortgage has priority under the default rule [§§ 9-334(c)]
• If creditor w/Article 9 SI in a fixture has perfected
it in any manner, then creditor has priority over a
subsequent lien creditor [§ 9-334(e)(3)]
– No fixture filing needed; regular UCC-1 filing (or autoperfection, if applicable) is sufficient vs. lien creditor
– Rationale: lien creditor isn’t a “reliance” creditor
• B/c Putnam Heating perfected its SI in the furnace
by filing a UCC-1, Trustee can’t avoid its SI [§ 9317(a)(2), BC § 544(a)]
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Problem 3
• Groppler loaned $12K to his sister
to install an infinity pool/spa in
her home, and he takes a SI in the
pool/spa (which became a fixture)
• Groppler’s question: Do I need to
make BOTH a fixture filing and a
regular Article 9 filing, or is the
fixture filing alone sufficient to
protect my priority?
• Groppler should consider filing both (or at
least appreciate the risk, if he doesn’t)
– A fixture filing establishes priority only vs.
conflicting claims arising under real estate law
– Problem: suppose Groppler’s sister later has the
spa removed (so that it is only personal property)
and then sells it to Jones, via e-Bay?
– If Groppler hadn’t filed a regular UCC-1 too,
Jones would take the spa free of Groppler’s SI
under the “garage sale” rule [§ 9-320(b)]
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