Article 9 of the UCC (Secured Transactions) shows up in a specific context on the MBE; namely, when fixtures are implicated. The situation will be as follows: A seller will sell an item of personal property to a buyer, and retain a security interest in that item of personal property. The buyer takes the item of personal property and affixes it to the land, so that it obtains the status of a fixture. The landowner then takes out a loan, and mortgages the land as security for the loan. The landowner then defaults on both loans.
The general rule is that the first to record his interest (between the seller of the personal property and the mortgagee) takes priority over the other. But Article 9 changes the results, slightly. The seller can take priority over the mortgagee regardless as to whether he recorded prior to the mortgagee provided that the seller records within 20 days after the item of personal property is affixed to the land. This, under article 9, is known as a "Fixture Filing." This is meant to protect the seller, so that if the mortgagee forecloses on the land (which would generally include all fixtures therein,) the seller will not lose his security interest in the item of personal property affixed.
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How is the seller supposed to know that the item of personal property was affixed to the land?
ReplyDeleteThe basis behind the fixture filing isn't about knowledge to the seller. The 20 days provides security for the seller; otherwise the purchaser could immediately install the product into the property subject to the mortgage, so that the mortgagee's interest would include the value of the product. The UCC essentially allows the seller 20 days after selling the product to file a fixture filing, thereby granting priority over the mortgagee should the purchaser default on his loan to both the seller, and the mortgagee, even if the mortgagee has already filed. It's true that the seller need to file a fixture filing until the product becomes a fixture on the property, but it's best to file immediately, because, as you've stated, it'll be difficult to know exactly when that occurs.
ReplyDeleteAhh, ok. Thanks! One more thing. Lets say that the seller sells a consumer good to the homeowner (buyer), and the buyer makes it a fixture. The seller never files, and buyer forecloses. Seller still has priority over bank?
ReplyDeleteIn that circumstance, the seller is out of luck. Seller has to file (to perfect the security interest), but is given a bit more leeway due to the UCC rules regarding fixture filing. If seller never files, bank will have priority over seller, assuming the good has taken on the status of a fixture.
ReplyDeleteI thought under UCC 9 consumer goods were automatically perfected? Am I wrong, or does the only apply if the good doesn't become a fixture?
ReplyDeleteThe rules change for fixture filings, and the seller will need to file to have priority against the mortgagee. In general, though, I wouldn't get too hung up on the intricacies of Art 9 for the MBE. The only rule you'll be required to know is 9-313. Under that rule, seller must record to gain priority over a mortgagee if the buyer affixes the chattel to real prop.
ReplyDeleteThanks!
ReplyDelete