Like a record of mortgage, a financing statement that indicates the debtor is a transmitting utility does not lapse. Secured parties need to be aware of what effect the choice of perfection method for a security interest in fixtures will have on their priority and the duration of their security interest. The best practice to ensure the highest priority is to file a fixture filing or record of mortgage in the real property records.
A secured party should have no trouble determining the correct lapse date of a record that perfects a security interest in fixtures. If perfected by the filing of a financing statement, the record is effective for five years. If perfected by a record of mortgage, the record does not lapse.
Please feel free to contact him with questions or comments at paul. Skip to content By: Paul Hodnefield, Esq. Priority of Security Interests in Fixtures The choice of perfection method has important ramifications for priority of the security interest. There are some limited exceptions to the general fixtures priority rule. Fixture Lapse Dates The lapse date of a record that perfects a security interest in fixtures should be easy for the secured party to determine. Transmitting Utilities There are special considerations for the secured party when perfecting a security interest in the fixtures of a transmitting utility.
Neither the text, nor official comment indicate otherwise. Now, when it comes to priority, it's going to take priority over a filing on fixtures that was made at the state level in the central filing office of the state where the debtor is located. However, it'll be subordinate to any prior fixture filing with respect to the fixtures. So if there's a UCC fixture filing in the real estate records ahead of it, that will take priority over a record of mortgage that's effective as a financing statement filed as a fixture filing.
All right. So let's talk a little bit about some of the basics of UCC fixture filings. First of all, when is it necessary to make a fixture filing as opposed to a record of mortgage or a filing at the state level on fixtures? Well, one idea is when fixtures are a valuable part of the collateral, something that, you know, is a significant portion, then a fixture filing might be required unless there's a record of mortgage that covers it and is sufficient to be effective as a financing statement filed as a fixture filing.
But if the fixtures are a valuable part of that collateral, it wouldn't be enough to simply file a financing statement with the secretary of state of the state where the debtor is located, because the risk would be too high that some, you know, recorded encumbrance would take priority over it. So that's a good time to file a fixture filing. Another one, and this is an important one. People don't always realize it, but if the record of mortgage provides a debtor name for the mortgagor that is different than the name that would be required for a UCC fixture filing, then a fixture filing may be necessary to do separately.
And the reason is that there are times where the name that is sufficient under real estate law is not sufficient under Article 9 and therefore would not be sufficient to perfect an Article 9 security interest in the fixtures. Yet, under the UCC, that name would not be sufficient because the name of the trustee is not sufficient as the name of the debtor for purposes of the financing statement.
It has to be either the name of the settlor or the name of the trust, if the trust has a name. So, in that type of case, it might be necessary to file a separate fixture filing to ensure that the correct debtor name is there because the mortgage might not be effective as a UCC filed as a fixture filing.
If there's a purchase-money security interest involved in the fixtures, Article 9 provides that there is a purchase-money security interest available for fixtures, but it must be perfected by a fixture filing.
Filing at the state level is not going to be sufficient in that case. And finally, sometimes, just for peace of mind, it makes sense to take the belt and suspenders approach and file both a fixture filing and either a state-level filing or a record of mortgage.
Much will depend on the particular facts and circumstances of the transaction which would be used in a particular case, or maybe more than one in a particular case. The next thing to consider is the filing location for fixtures.
I've already touched on this a little bit. But if you're taking fixtures as part of a normal UCC collateral statement when filing in the central index of the state where the debtor is located, the way to arrive at that is the same way as it would be, say, for equipment or accounts or anything like that.
You look to what law governs perfection and priority. In this case, it would be the law of the state where the debtor is located. And then, you look to the a 2 office in that state. And that is typically going to be the secretary of state or other central filing office for the state, except in, say, Georgia, where all the filing is done locally, or Louisiana, filing offices are all local. But in every other state, there's a central filing office.
For a fixture filing, it's a little bit different, because, with a fixture filing, we're dealing with real property, the overlap with real property law. And so, here, the law governing perfection of a security interest perfected by a fixture filing is the law of the state where the goods are located, in other words, where the real property is located. And that's going to require looking at the a 1 office of the state where the goods are located, and that's going to say in all states but I think Louisiana, it says the office designated for the filing or recording of a record of mortgage on the affected real property.
So the real estate records, that's what it boils down to. And for a record of mortgage, well, by definition, it is a real estate record, so it's going to be filed in the real estate records where the affected real property is located. And that will be exactly the same office as for a fixture filing, the a 1 office. As far as the content requirements for a fixture filing, they have to indicate that they cover the type of collateral. The reason for this indication is that the collateral may not describe fixtures.
It may describe all assets. It might describe goods or something like that. So there is a method to make this indication when you file a fixture filing. Almost always it will require the filing of a UCC1 addendum. And that addendum has fields for the real estate information, and there are checkboxes to indicate the type of collateral filed at the county, including fixtures, timber, and minerals to be extracted. That same addendum has a checkbox to indicate to file in the real estate records.
This is mandatory if it is to be filed in the real estate records for two reasons. Number one, there are a number of jurisdictions where if it's not checked, it will be filed in a different index and not in the real estate records, and it will not be found on a search.
And in that case, the secured party is probably going to be the one that bears that risk. The second is that because the requirement is found in Section and provides the requirements for sufficiency of a financing statement, failure to check the box arguably means that the financing statement filed as a fixture filing is not effective because it's not sufficient. And while I haven't seen any cases challenging a fixture filing on those grounds, it could happen, so don't give them the opportunity.
As far as the description of the real property goes, Article 9 simply says it has to reasonably describe the real property. So as a description of the real property, in the official comments, it says it just has to reasonably describe it. And that's all fine and dandy. But as a practical matter, the counties need a more specific description of the real property.
And it varies a little bit from county to county, but most of them require a legal description so that they can get this associated with the right piece of real property.
In addition to the legal description, many counties also require the property identification number for various reasons. Sometimes the indexing is tied to the property identification number.
In other cases, that's used for tax purposes, and it has to get a tax clearance before it can be recorded and all sorts of things like that. So oftentimes, if you have it, it's a good idea to put the PIN number on there. Many counties do require it. The name of the record owner. As I said earlier, if the debtor does not have an interest of record, maybe because the debtor is the beneficiary of a trust that owns the property or the debtor is a lessee with an unrecorded lease. There, they have rights in the property, but they don't have an interest of record, and without an interest of record, there's no way for the county to attach the UCC to the system correctly so that it can be retrieved.
And therefore, in that case, they require a name of the record owner so that they can hook it on to that chain of title where people can find it. So it's important if the debtor doesn't have that record to provide the record owner name and address. Now, this is the applicable portion of the UCC1 Addendum form.
If you look closely at it, you'll see what I've been describing as far as, you know, where the information could be provided. The indications required by b 1 that it covers the collateral of the type, they are found right here. You can check fixtures timber to be cut or as extracted collateral.
The file in real the estate records box is here as well. So is a field for the legal description. Now, this size field is adequate for very small legal descriptions. For example, you know, lot 1 block 5 of something addition, you know, Minneapolis, Minnesota. But if you get into a metes and bounds description or some longer descriptions, you wind up having a problem spitting it in there.
There's nothing wrong with attaching an exhibit with a legal description. I would recommend in all cases to incorporate it by reference in this field. And that way there's no question that that legal description ties to this particular record.
And then, finally, there is the field for the name and address of the record owner under b 4 , and you can provide that in here, or you could incorporate a schedule or exhibit. Now, it only requires the name of a record owner, not the record owners. It wouldn't hurt to provide as many of them as you know or as you can come up with, if it is required. Now, once it's filed, a UCC financing statement that covers fixtures and is filed at the state level, the central office of the state in which the debtor is located, that is effective under the general UCC duration and effectiveness rules for five years.
And it can be continued for additional five-year periods by filing a continuation statement every five years. It's no different than a financing statement that covers equipment or accounts. It's just five years, file a continuation to keep it effective. And they can be continued every five years, you know, forever.
A fixture filing is also effective for the general five-year duration and effectiveness rule under Article 9. There are no special duration and effectiveness rules for fixture filings. It has to be continued every five years. And I constantly get questions about this. You know, somebody says, "I've been told that fixture filings are effective for 20 years, or they don't lapse," or something like that.
Or I hear, "The filing office told me I don't need to file a continuation because they never remove the record from the index. Well, all this is well and good, but bottom line is the law says it lapses at five years unless a continuation statement was filed. There are no exceptions to that. They will lapse. I take that back. There is one exception, maybe two.
Well, one, and that's Wyoming. And it's not an exception for fixture filings, it's an exception for UCC records generally. The default rule in Wyoming is that UCC records are effective for 10 years, and a continuation statement extends the effectiveness for an additional 10 years.
So the issue here is that the general rule is still in place, it's just that the general rule is 10 years. Here are the definitions of fixtures and fixture filing under Article Here are just a few examples of items that could be covered by Article This filing does not attach to real property and would not appear in real property records i. Although a fixture filing is still a UCC filing, it is recorded in the real property records, which then turns the security interest into a mortgage or lien against the actual property where the fixture is or will be located.
Section b is key, as it is specific to real property:. Delay by the filing office beyond a time limit prescribed by this part is excused if:. However, the recording and satisfaction fees that otherwise would be applicable to the record of the mortgage apply. The filing-office rules must be:. Secured Transactions Part 5 Filing. Filing office. Contents of financing statement; record of mortgage as financing statement; time of filing financing statement.
Name of debtor and secured party. Indication of collateral. Indication of collateral that is accounts, chattel paper, instruments or general intangibles.
Filing and compliance with other statutes and treaties for consignments, leases, other bailments, and other transactions. Effect of errors or omissions.
Effect of certain events on effectiveness of financing statement. Effectiveness of financing statement if new debtor becomes bound by security agreement. Persons entitled to file a record.
Effectiveness of filed record.
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