Fixture Filings

One of the most difficult Article 9 (Secured Transactions) essays I've seen show up on the multistate esssay exam ("MEE") contains among many other issues an issue on fixture filings. Should it show up again, it'll be helpful to know about it.

Fixtures are goods that become so attached to real property that an interest in them arises under real property law. In other words, upon attachment to the real property this personal property ceases to become merely an item of personal property.  And so imagine that there is a valid security interest in an item of personal property. Things can get complex when that item of personal property is attached to real property that also happens to have upon it a mortgage. Should the mortgagee or the secured property have priority over that item of personal property if the real property is sold at foreclosure?

A fixture filing is a filing in the local real estate records describing the real property to which the fixture is attached. Generally, the first to file a fixture filing or the first to record the real property interest will prevail. There is an important exception, though.

A purchase money security interest ("PMSI") is a special type of security interest that enables those who finance a debtor's acquisition of goods to acquire first priority in the collateral. If a secured party is secured by a PMSI and that secured party makes a fixture filing within 20 days after the item of personal property is affixed to the real property then the secured party will prevail over any real property interest in the same item of personal property even if the real property interest was recorded prior to the fixture filing. In other words, the first to file rule does not apply here.

Another point to note: If the above applies and the fixture has priority over any interest in the real property, then the holder of the security interest in the fixture may upon default remove the fixture from the real property. But the holder of the security interest will be required to reimburse any owner of the real property who is not also the debtor for the cost of any repairs for physical injury to that real property.