secured transactions assignments 20 and 33

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Secured TransactionsAssignments 20 and 33

Land and Fixtures Recording Systems

2

The relationship between Article 9 filing and real estate recording

Real Personal

Property lies along a continuum from real to personal . . .

3


Land

Real

Chattels

Personal

Intermediate

Property lies along a continuum from real to personal . . .

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Land

Real

Chattels

Personal

Intermediate

9-334(b)

Real estate law “Fixtures” 9-102(a)(41)

Real estate law governs goods sufficiently related to real estate to be a “fixture” under real estate law.

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Land

Real

Chattels

Personal

Intermediate

9-334(a)

9-334(b)


UCC Article 9

UCC Article 9 permits the attachment and perfection of security interests in “goods, including fixtures.”

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Land

Real

Chattels

Personal

Intermediate

9-334(a)

9-334(b)


UCC Article 9

UCC Article 9 permits the attachment and perfection of security interests in “goods, including fixtures.” But not “ordinary building materials incorporated into an improvement on land.”

“Ordinarybuilding

materials”

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UCC Article 9

Land

Real

Chattels

Personal

Intermediate

9-334(a)

9-334(b)

“Tradefixtures”“Ordinary

buildingmaterials”

“Trade fixtures” is a term used to refer to store shelving and display cases that are not part of the real estate.

Intermediate

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UCC Article 9

Land

Real

Chattels

Personal

9-334(a)

9-334(b)



“Goods” 9-102(a)(44)

“Goods” means all things that are moveable when a security interest attaches. “Goods” includes “(i) fixtures . . . .”

“Goods” includes “ordinary building materials incorporated into an improvement on land” Comment 3 to § 9-334

Intermediate

9



UCC Article 9

Land

Real

Chattels

Personal

9-334(a)

9-334(b)



“Goods” 9-102(a)(44)

“Goods” means all things that are moveable when a security interest attaches. “Goods” includes “(i) fixtures . . . .”

“Goods” includes “ordinary building materials incorporated into an improvement on land” Comment 3 to § 9-334

Intermediate

“chattel financing is preserved”

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UCC Article 9

Land

Real

Chattels

Personal

Intermediate

9-334(a)

9-334(b)



“Goods” 9-102(a)(44)

UCC deference to real estate law is not complete. UCC seeks to override as to “readily removable” fixtures § 9-334(e)(2)

Readilyremovables

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Real estaterecording system

1. Mortgages

2. Financing statements filed as fixture filings, 9-502(b)

3. Mortgages effective as fixture filings under 9-502(c)

Article 9 filing system

1. Financing statements

2. Financing statements filed against fixtures, 9-501(a)(2).

3. Financing statements against collateral, including fixtures, of a transmitting utility.

Separate Filing Systems

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1. Mortgages




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1. Mortgages

2. Financing statements filed as fixture filings, §9-502(b)




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1. Mortgages


3. Mortgages effective as fixture filings under §9-502(c)




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1. Mortgages





2. Financing statements filed against fixtures, but not fixture filings §9-501(a)(2).


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1. Mortgages





2. Financing statements filed against fixtures, but not fixture filings §9-501(a)(2).

3. Financing statements against transmitting utilities, including fixture filings.

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Financing statement which is filed as a fixture filing: §9-502(b) formalities

1. Provide name of the debtor

2. Provide name of the secured party

3. Indicate the collateral covered

4. Indicate that it covers fixtures (so real estate searchers will know what it is)

5. Indicate it is to be filed in the real estate records (so filing officer will know what to do with it)

6. Describe the real property (so real estate searcher can recognize it

7. Provide the name of a record owner (so it will be in the chain of title if fixture owner is not land owner)

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4. Indicate that it covers fixtures (so real estate searchers will know what it is) [on the §9-521 addendum]




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5. Indicate it is to be filed in the real estate records (so filing officer will know what to do with it) [§9-521form]



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6. Describe the real property (so real estate searcher can see its relevance) [§9-521 addendum]


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6. Describe the real property (so real estate searcher can see its relevance) [§9-521 addendum]

7. Provide the name of a record owner (so it will be in the chain of title if fixture owner is not land owner) [§9-521 addendum]

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6. Describe the real property (so real estate searcher can recognize it)


Securityinterest

Real estateowner

SecuredParty

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Securityinterest

SecuredParty

Real estateOwner

Unrecordedlease

Fixtureowner

24









Securityinterest

SecuredParty

Mortgage

Real estateOwner

Mortgagee(searcher)

Unrecordedlease

Fixtureowner

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Problem 20.1, page 357

How do we perfect in these items of collateral:

a. A “one-third interest in a 160-acre tract of land?”

Tenancy in common: Real estate mortgage

Trust or partnership: Financing statement in SOS office

b. Pine trees growing in straight rows for easy harvesting?

Not a fixture, not permanently affixed (Christmas tree case)

Mortgage reaches crops in some states (Comment 12)

Security interest in crops has priority over mortgage in crops, 9-334(i), so file financing statement with SOS

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Probably not a fixture, not permanently affixed. Need a filing with SOS. (Christmas tree case)



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May be fixture, so need fixture filing.

Mortgage reaches crops in some states (§9-334 Cmt. 12), which means it doesn’t reach them in others.

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May be fixture, so need fixture filing.

Mortgage reaches crops in some states (§9-334 Cmt. 12), which means it doesn’t reach them in others.

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Problem 20.1, page 357How do we perfect in these items of collateral:

c. Parcel of land with virgin growth of walnut trees?

Are the trees fixtures? Maybe “timber to be cut,” 9-501(a)(1)(A).

Mortgage will reach trees unless we have decided to cut them.

d. Should the mortgage mention the trees?

Maybe, but “include one, exclude the other.” (grass).

e. Promissory note and the mortgage that secures it.

Perfect in the right to payment, 9-308(e), 9-203(g)

Take possession (instrument, 9-313(a)) and file with SOS (account, 9-310(a))

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Mortgage will reach trees.






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Can a UCC filing reach trees? Not if they are like “ordinary building materials.”

Should the mortgage exclude the other.” (grass).




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Are the trees fixtures? Maybe “timber to be cut,” 9-501(a)(1)(A), but see “goods” definition, 9-102(a)(44).







PacificInterests

Mark IVPartners

Secured Lend-ing Partners

Promissory note 1 and mortgage

Promissory note 2 and security interest in the mortgage

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PacificInterests

Mark IVPartners




Does Article 9 apply? §9-109(b)

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Perfect in the right to payment, 9-203(g), 9-308(e).


PacificInterests

Mark IVPartners





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Perfect in the right to payment, 9-203(g), 9-308(e). How?


PacificInterests

Mark IVPartners





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Perfect in the right to payment, 9-203(g), 9-308(e). How?


PacificInterests

Mark IVPartners





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Problem 20.1, page 357How do we perfect in:

f. Cell phone tower?

What does Pacific Interests own?

Is the tower a fixture?

Is Pacific Cellular, Inc. a transmitting utility?

9-102(a)(80). Transmitting utility means a person primarily engaged in the business of:

(B) Transmitting communications electrically, electromagnetically, or by light

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(B) Transmitting communications electrically,

PacificCellular Inc.

PacificInterests

Farmer

45







(B) Transmitting communications electrically,

PacificInterests

Farmer

Stock


46

Stock



What does Pacific Interests own? How do we perfect a security interest in stock?

PacificInterests

Farmer


47

Stock




We also want the tower. Is it a fixture?

PacificInterests

Farmer


48

Stock





Who is the “debtor?”

PacificInterests

Farmer


49

Stock





Who is the “debtor?” A transmitting utility?

PacificInterests

Farmer


50

Stock








PacificInterests

Farmer


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Stock








PacificInterests

Farmer


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How do we perfect in the tower if:


PacificInterests

Farmer

Stock

Fixture Not fixture

Transmitting utility

Not transmitting utility


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PacificInterests

Farmer

Stock

Fixture Not fixture


State UCC §9-501(b)



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PacificInterests

Farmer

Stock

Fixture Not fixture





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PacificInterests

Farmer

Stock

Fixture Not fixture






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PacificInterests

Farmer

Stock

Fixture Not fixture






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PacificInterests

Farmer

Stock

Fixture Not fixture





Fixture filing in RE records 9-501(a)(1)


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PacificInterests

Farmer

Stock

Fixture Not fixture







59



PacificInterests

Farmer

Fixture Not fixture






State UCC §9-501(a)(2)

Stock


60



PacificInterests

Farmer

Stock

What do we file?

Fixture Not fixture








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PacificInterests

Farmer

Stock

What do we file? (1) Local fixture filing and (2) SOS indicating that it may cover fixtures of a transmitting utility.

Fixture Not fixture








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g. Natural gas pipeline that runs through 119 counties in four states?

Transmitting utility? Yes. 9-102(a)(80)

Are pipes fixtures? Probably yes. So we file under 9-501(b).

How do we perfect in the real property and easements? Mortgages, 9-334(a). Nightmare.

Can the mortgages include the pipes? Yes, automatically.

If we do mortgages, do we need fixture filings? No.

So what good is 9-501(b)? Helps if the fixtures are attached to someone else’s land.

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Transmitting utility?

§9-102(a)(80) “Transmitting utility” means a person primarily engaged in the business of:

. . . .

(C) transmitting goods by pipeline or sewer

. . . .

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Transmitting utility? Yes. §9-102(a)(80)(C)






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Are pipes fixtures? Probably yes. So we file under §9-501(b).





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How do we perfect in the real property and easements? Mortgages, §9-334(a). Nightmare.




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So what good is §9-501(b)? Helps if the fixtures are attached to someone else’s land.

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So what good is §9-501(b)? Helps if the fixtures are attached to land or easements that won’t be collateral (example, the cell phone tower).

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PacificInterests

Oaks Mall,Ltd.

Secured LendingPartners, Inc.


Mortgagee onthe Mall

Lease

Security interest in “store fixtures”

Mortgage on the Mall

How do we perfect in the store fixtures?

76

PacificInterests

Oaks Mall,Ltd.

Secured LendingPartners, Inc.


Mortgagee onthe Mall

Lease

Security interest in “store fixtures”

Mortgage on the Mall

How do we perfect in the store fixtures?

Fixture filing and UCC filing

77

The Big Picture

Assignment 33: Secureds vs. Secureds: Land and Fixtures

Mortgage vs. Mortgage

Purchase money mortgage vs. Mortgage

Judgment lien vs. Mortgage

Mechanic’s lien vs. Mortgage

Fixture filing vs. Mortgage (also Construction Mortgage)

Purchase money fixture filing vs. Mortgage

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The Big Picture

Assignment 33: Secureds vs. Secureds: Land and Fixtures

Mortgage vs. Mortgage

Purchase money mortgage vs. Mortgage

Judgment lien vs. Mortgage

Mechanic’s lien vs. Mortgage

Fixture filing vs. Mortgage (also Construction Mortgage)

Purchase money fixture filing vs. Mortgage

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Priority Rules: Fixture Filing vs.Ordinary Mortgage

.

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.§334(e). First to file (in the real property records).

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In context, that means the mortgage will nearly always win:

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Goodsbecomefixtures

Goods

Real estate

Mortgage 1 Mortgage 2

First fixture filingopportunity

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Goodsbecomefixtures

Goods

Real estate

Mortgage 1 Mortgage 2

First fixture filingopportunity

The fixture filing is subordinate to Mortgage 1, prior to Mortgage 2.

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Priority Rules: Purchase Money Fixture Filing vs. Ordinary Mortgage

.

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.§334(d). A purchase money security interest in fixtures has priority over an earlier-recorded mortgage if the fixture filing is made before 20 days after the goods become fixtures

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Goodsbecomefixtures

Goods

Real estate

Mortgage 1

20 days

Purchase moneyfixture filing

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Goodsbecomefixtures

Goods

Real estate

Mortgage 1

20 days

Purchase moneyfixture filing

Purchase moneyfixture filing has priorityover the mortgage

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Priority Rules: Fixture Filing vs. Construction Mortgage

.

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.§334(h). [A construction mortgage has priority over a fixture filing] (unless the fixture filing is prior in time, §334(e)), if

1. The construction mortgage is recorded before the goods become fixtures and

2. The goods become fixtures before the completion of construction.

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Constructionmortgage

AffixingEnd

construction

91






AffixingEnd

construction

PMSI

This PMSI is subordinate

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.§334(h). [A construction mortgage has priority over a fixture filing (unless the fixture filing is prior in time, §334(e))], if




AffixingEnd

construction

93


.§334(h). [A construction mortgage has priority over a fixture filing (unless the fixture filing is prior in time, §334(e))], if




AffixingEnd

construction

Fixture filing PMSI

This fixture filing is prior, §334(e)

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.


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.1. Folds sells mobile home that is a fixture, takes SI, makes a

non-fixture filing


96


non-fixture filing

2. Debtor files bankruptcy


97


non-fixture filing


Is Folds perfected?


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non-fixture filing


Is Folds perfected?

§9-501(a). [T]he office in which to file a financing statement . . . is . . . the office of the Secretary of State in all other cases, including a case in which the collateral is goods that are . . . fixtures and the financing statement is not filed as a fixture filing.


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non-fixture filing


Is Folds perfected?


Between TIB and Folds, who has priority?


100


non-fixture filing


Is Folds perfected?


Between TIB and Folds, who has priority?

§9-334(e)(3). A perfected security interest in fixtures has priority over a conflicting interest . . . obtained by legal or equitable proceedings after the security interest was perfected by any method permitted by this article.


101


non-fixture filing


Is Folds perfected?


Between TIB and Folds, who has priority? Folds

§9-334(e)(3). A perfected security interest in fixtures has priority over a conflicting interest . . . obtained by legal or equitable proceedings after the security interest was perfected by any method permitted by this article.


102

Goodsbecomefixtures

Goods

Real estate

Foldsperfects

Problem 33.3, page 5531. Folds sells fixture (mobile home) perfects by non-fixture filing

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Goodsbecomefixtures

Goods

Real estate

Foldsperfects

Commercialperfects


2. Commercial Finance perfects by a fixture filing

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Goodsbecomefixtures

Goods

Real estate

Foldsperfects

Commercialperfects




Debtor bankruptcy

105

Goodsbecomefixtures

Goods

Real estate

Foldsperfects




As between Folds and Commercial, who is first?

Commercialperfects

Debtor bankruptcy

106

Goodsbecomefixtures

Goods

Real estate

Foldsperfects




As between Folds and Commercial, who is first? Neither §9-334(c) or (e)(1) apply because a secured party is not an “encumbrancer . . . of the related real property.” Folds wins under §9-322(a)(1).

Commercialperfects

Debtor bankruptcy

107

Goodsbecomefixtures

Goods

Real estate

Foldsperfects


Commercialperfects

Debtor bankruptcy

Is the holder of a security interest an “encumbrancer?” No.

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Goodsbecomefixtures

Goods

Real estate

Foldsperfects


Commercialperfects

Debtor bankruptcy


§9-102(a)(32). “Encumbrance” means a right, other than an ownership interest, in real property. The term includes mortgages and other liens on real property.

109

Goodsbecomefixtures

Goods

Real estate

Foldsperfects


Commercialperfects

Debtor bankruptcy


§9-102(a)(32). “Encumbrance” means a right, other than an ownership interest, in real property. The term includes mortgages and other liens on real property.

§9-102(a)(52). “Lien creditor” means . . . a creditor that has acquired a lien on the property involved by . . . levy . . . or the like.

110

.a. Sound City plans to install a sound system. No remodeling.

Wants to rip the system out if buyer doesn’t pay.


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1. Will Sound City be entitled to a mechanic’s lien? Page 537.


112




Who must authorize the work?


113





New York Lien Law §3, page 537: A contractor . . . who performs services or furnishes materials . . . at the request of the owner . . . or his agent . . . shall have a lien . . . .


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§2. The term “owner” . . . includes . . . a lessee for a term of years . . . .


115







2. Will a mechanic’s lien entitle Sauls to rip the system out?


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2. Will a mechanic’s lien entitle Sauls to rip the system out?

Right to foreclose, no right to remove.


117

.b. Does Sound City need the land owner’s signature for a

fixture filing?


118


fixture filing?

No, §9-203(b)(3), §9-509(b). Just the “debtor.”


119


fixture filing?


Will a fixture filing give Sound City the right to remove?

§9-604(c). If a secured party . . . has priority over all owners and encumbrancers . . . the secured party, after default, may remove the collateral.

§9-334(d). A perfected security interest in fixtures has priority over . . . encumbrancer or owner . . . if . . . the debtor is in possession of the real estate and [the] purchase money security interest is perfected within 20 days . . . .


120


fixture filing?


Will a fixture filing give Sound City the right to remove? Yes.

§9-604(c). If a secured party . . . has priority over all owners and encumbrancers . . . the secured party, after default, may remove the collateral.

§9-334(d). A perfected security interest in fixtures has priority over . . . encumbrancer or owner . . . if . . . the debtor is in possession of the real estate and [the] purchase money security interest is perfected within 20 days . . . .


121

.c. Sound City plans to install the sound system in a building

presently under construction. Will a fixture filing give Sound City the right to repossess after default?


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§9-334(h). A mortgage is a construction mortgage to the extent that it secures an obligation incurred for the construction of an improvement on land . . . if a recorded record of the mortgage so indicates. . . .


123



§9-334(h). A mortgage is a construction mortgage to the extent that it secures an obligation incurred for the construction of an improvement on land . . . if a recorded record of the mortgage so indicates. . . . [A] security interest in fixtures is subordinate to a construction mortgage if the mortgage is recorded before the goods become fixtures and the goods become fixtures before the completion of the construction.


124




Would Dub’s consent in writing to removal in the event of default be of help? §9-334(f).


125




Would Dub’s consent in writing to removal in the event of default be of help? §9-334(f).

Not unless Dub’s had a right to remove in its lease. The construction mortgage holder’s consent is needed.


secured transactions assignments 20 and 33

Documents