Transcript Is Your Security Over Fixtures Fiction?

Is Your Security Over Fixtures Fiction?
Jeffrey M. Katz
Partner, Dechert LLP
© 2009 Dechert LLP
Fixtures and Lien Priorities
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What are Fixtures?
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UCC § 9-102(41): “[G]oods that have become so related to particular real property that an
interest in them arises under real property law.”
Why is it important to know if a Good has become a Fixture?
General Rule
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UCC § 9-334(c): Subject to limited exceptions, “a security interest in fixtures is subordinate to
a conflicting interest of an encumbrancer or owner of the related real property other than the
debtor.”
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Under the general rule, a security interest in fixtures previously perfected by a UCC-1 financing statement
properly filed with the appropriate Secretary of State’s office will lose to a later-filed mortgage on or other
recorded interest in the real property.
What about “First-in-Time, First-in-Right”?
What the Fixtures Lienor Must do to Prevail
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2 Major Exceptions to General Rule
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Prior Fixture Filing
Purchase-Money Security Interest
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Fixtures and Lien Priorities (cont’d)
UCC-1 Filing
• Secretary of State’s Office
Fixture Filing
• Local real property records; office where mortgage would be recorded
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Prior Fixture Filing – UCC § 9-334(e)
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If the fixture filing is recorded in the real property records before the competing real
property interest, the fixtures lienor will prevail (first-in-time, first-in-right)
Purchase Money Security Interests – UCC § 9-334(d)
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The secured obligation represents “the price of the [fixtures] or…value given to enable
the debtor to acquire [the fixtures]…UCC § 9-103(a)(2)
AND
The security interest in the fixtures is perfected by a “fixture filing” before the goods
become fixtures or within 20 days thereafter. UCC § 9-334(d)(3)
So, in the case of a PMSI on the fixtures, even if the conflicting real property
interest arose and was recorded prior to the creation of the security interest in
the fixtures, the fixtures lienor prevails.
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“So Related to Particular Real Property”
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Is it a Fixture?
– Some variation in state-by-state analysis, but following factors common:
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Has it been attached in a permanent manner?
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Is it adaptable to the property’s intended use?
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Will its removal damage the property?
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Intent of the parties
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Some relevant precedent:
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In re Williams, 381 B.R. 742 (2008) (home guttering system held not
to be a fixture under UCC Article 9; court found that, since gutters
wear out and require replacement and their removal would not
extensively damage the property, they are not fixtures)
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Brown v. Blake, 161 S.W.3d 298 (2004)
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Solar Panels
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Solar Panels as Fixtures?
– A question of growing relevance; current application of fixtures issue
• Will depend upon how they are attached to roof, extent of
damage caused on removal, and contractual characterization, if
any
– certainly “adopted to use of realty” if it will supply power
– Some related precedent
• Energy Control Services v. Arizona, 658 P.2d 820 (1982)
(solar water heater held to be a fixture under similar test under
unrelated statute)
• In re Arlett, 22 B.R. 732 (1982)
(solar water heater held to be a fixture under UCC Article 9; was
attached to roof by bolts and plumbing and deemed permanent)
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Priority vs. Construction Mortgagee
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UCC § 9-334(h) – unless the PMSI fixture filer filed before
recordation of the construction mortgage, a construction mortgagee
defeats the PMSI fixture filer, so long as the fixtures are attached
prior to the completion of construction.
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Usual rule protecting PMSI fixture filers does not apply here.
If FF made
here, FF liens
win (§9-334(e))
If FF made here,
construction
mortgagee wins
(§9-334(h))
Construction loan
recorded
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Panels attached to house
Completion of construction
A solar panel manufacturer supplying into a construction project
should ensure that its fixture filing is made prior to filing of
construction mortgage (or make appropriate contractual intercreditor
arrangements), or else it won’t have the senior lien in its supplied
solar panels.
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