CSC The UCC & Fixtures

The UCC & FixturesThe UCC & Fixtures

TThe Essentials of Fixture Perfection & he Essentials of Fixture Perfection & PriorityPriority

20162016

Presented by:Paul HodnefieldAssociate General CounselCorporation Service Company

Page 2© 2016 by Corporation Service Company®

IntroductionFixture IdentificationFixture Perfection Methods Filing Location for Security Interest in FixturesPriority of Security Interests in FixturesFixture Perfection Duration & EffectivenessOther Fixture Perfection & Priority IssuesQ&A

Presentation Outline


Fixture Identification

Fixtures Defined


“Fixtures”Goods that have become so related to particular real estate that an interest in them arises under real estate law. § 9-102(a)(41).

The Issue:

When do goods become subject to an interest under real estate law?

Article 9 Definition


Representative Case:Renak, et. al. v. Feest, 703 N.W.2d 384 (Wis. Ct. App. 2006)

Three-part Test:

1. Actual annexation to the realty.2. Appropriation to the use or purpose of that part of the realty with

which it is connected.3. Intention of the party making annexation to make the article a

permanent accession.

Fixtures Case Law Example

©2011 by Corporation Service Company


• Grain bins• Airplane hanger• Theater chairs• Irrigation equipment• Vacuum cleaner hose

Court Fixture Determinations

• Grain bins• Airplane hanger• Large engine • Hog buildings• Bathtub

Fixtures NOT Fixtures

The Courts Determine Fixtures on a Case-By-Case Basis!


If there is any question, treat goods as both fixtures and personal property.

Best Practice


Fixture Perfection Methods


Filed as a Regular UCC Financing StatementMerely needs to indicate it covers “fixtures.”

• “ALL ASSETS” includes fixtures.

Financing Statement SufficiencyMust comply with requirements of § 9-502(a).

• Name of debtor.• Name of secured party.• Indication of the collateral.

May commingle fixtures with other collateral.

Method #1: Filing on Fixtures


S.W. Bank of STL v. Poulokefalos


“Fixture Filing” Defined in § 9-102(a)(40):The filing of a financing statement covering goods that are or are to become fixtures and satisfying both § 9-502(a) and (b).

Financing Statement SufficiencyMust comply with requirements of § 9-502(a).Must satisfy § 9-502(b):

• Indicate it covers this type of collateral.• Indicate it is to be filed in the real estate records.• Provide a description of the related real property.• Provide name of record owner if debtor is not of record.

Only effective for fixtures, not other assets.

Method #2: Fixture Filing


Term is Broadly Defined in § 9-102(a)(55):A consensual interest in property, including fixtures, that secures payment or performance of an obligation.

Record of Mortgage Sufficiency:Must satisfy § 9-502(a) & (b).

• Need not indicate it is to be filed in real estate records.Must satisfy § 9-502(c):

• Indicate the goods or accounts it covers.• The goods are or are to become fixtures related to the real property

described in the record.• Record is duly recorded.

Method #3: Record of Mortgage


Collateral Covered by Record of Mortgage:Fixtures for UCC purposes.Can serve as security agreement for other collateral.

• Requires secured party to file a UCC financing statement in the state where the debtor is located. See § 9-502 Comment 6.

Amendment of Mortgage:Assignments must be made in the manner in which a mortgage would be assigned under real property law. See § 9-514(c) and Comment 2.Article 9 is silent regarding application of Part 5 to other record of mortgage amendments.

Method #3: Record of Mortgage Cont.


Filing on Fixtures & Fixture FilingFinancing statement must strictly comply with debtor name requirements in § 9-503(a).Savings provision of § 9-506(c) applies for filing on fixtures.Local filing office may not have standard search logic for purposes of § 9-506(c) so it may not apply to fixture filings.

Record of Mortgage:§ 9-503(a) debtor name sufficiency requirements may also apply to a record of mortgage.Exception: Surname and first personal name of individual debtor sufficient as name of debtor in most states.CAUTION: § 9-503(a) requirements may be different from what is otherwise sufficient as the name of a grantor/debtor under real estate recording law.

Sufficiency of Debtor Names


Option #1 – Filing on FixturesNearly all state-level filing offices now allow electronic filing of UCC records.

Option #2 – Fixture FilingElectronic recording of UCC fixture filings is now available in more than 300 counties across the country.

Option #3 – Record of MortgageElectronic Recording of a record of mortgage is available in more than 1000 counties covering the 2/3 of the U.S. population.

Filing Method


Filing Location for Perfection of Security Interest in Fixtures


Option #1 – Filing on Fixtures§ 9-501(a)(2) office of the state where the debtor is located.

• § 9-301(1) provides the law of the debtor’s location governs perfection and priority of security interest.

Option #2 – Fixture Filing§ 9-501(a)(1) office in the state where the goods are located.

• § 9-301(3)(A) provides the local law of jurisdiction where the collateral is located governs perfection by filing a fixture filing.

Office designated for filing or recording a record of mortgage on the affected real property.

Option #3 – Record of MortgageReal estate records in the location of the affected real property.

• Same as § 9-501(a)(1).

Filing Location for Fixtures


Debtor is a Delaware CorporationFixtures are or will be Located at Property in Harris County, Texas

Fixture Filing Location Example

Delaware SOS

Fixture Filing Record of MortgageFiling on Fixtures

Harris County Clerk, TX


§ 9-301(1) Designates Law of Debtor’s Location as Controlling Perfection in Personal Property.

Jurisdiction where debtor is located.Most T/Us are Registered Organizations.Therefore, most T/Us are located where organized.

§ 9-501(b) Designates Filing Office within State if Debtor is Transmitting Utility

Normally, but not always, the same office as for other state-level UCC records.Filing in § 9-501(b) office is also effective as a fixture filing.

Caution!Under § 9-301(3)(A), law of location of collateral governs perfection in fixtures.

Transmitting Utility Fixtures


Best Practices for Perfection on Fixtures of a T/U:File in the state where the fixtures are located.

ExampleDebtor is a T/U and a Delaware corporation.Debtor owns fixtures in Texas and California.

Transmitting Utility Fixtures

Delaware SOS Texas SOS

Filing on Personal Property Fixture Filing Fixture Filing

California SOS


Priority of Security Interests in Fixtures


General Priority RulesPriority ranks from the earlier time of filing or perfection.

• See § 9-322(a). Caution!

§ 9-322(a) determines priority between all UCC interests.• Filing on fixtures can only take priority over a fixture filing.

§ 9-334 determines priority between a UCC interest and a recorded real estate encumbrance.

• Filing on fixtures is subordinate to recorded real estate interests other than that of the debtor. See § 9-334(c).

ExceptionsSecurity interest in fixtures takes priority if encumbrancer or owner consented or disclaimed an interest in the goods, orDebtor has a right to remove the goods as against an encumbrancer or owner. § 9-334(f).The fixtures are readily removable. See § 9-334(e)(2).

Priority Impact of Filing on Fixtures


Fixture Filing Priority Against other UCCs:Priority determined by § 9-322(a).

Priority Against Recorded Encumbrances:Takes priority over conflicting security interests filed after the filing of the fixture filing.

• See § 9-334(e).

Priority Impact of Fixture Filing


Record of Mortgage Takes Priority Over Filing on Fixtures

Filing on fixtures is subordinate. See § 9-334(c).

Record of Mortgage Takes Priority Over Subsequent Mortgages and Fixture Filings

§ 9-334(e). Presuming the mortgage perfects a UCC security interest in fixtures.

Record of Mortgage is Subordinate to a later PMSI in Fixtures.

If perfected in compliance with § 9-334(d).

Priority Impact of Record of Mortgage


Sturtz Machinery, Inc. v. Dove’s Industries, Inc.2014 U.S. Dist. LEXIS 49235 (N.D. Ohio Apr. 8 2014).

SP1 Filed on Fixtures Financing statement filed on February 2, 2012 with Pennsylvania Secretary of State.

SP2 Made a Fixture Filing Financing statement recorded August 17, 2012 in the Pulaski County, Virginia real estate records.

Court Applied § 9-322(a) to Determine Priority Priority between competing UCC interests is based on the first to file rule.Possibility of circular priority.

Fixtures Priority Case Example


Circular Priority Risk

Filing on FixturesJune 1st

Fixture FilingJune 2nd

Record of MortgageJune 3rd


Fixture PerfectionDuration & Effectiveness


Option #1 – Filing on FixturesFinancing statement filed on fixtures is effective for 5 years under § 9-515(a).

Option #2 – Fixture FilingFinancing statement filed as a fixture filing is effective for 5 years under § 9-515(a). Caution!

• Some filing offices state that fixture filings do not lapse. • That is not correct!

Option #3 – Record of MortgageEffective until released, satisfied or cease to be effective by its own terms under § 9-515(g).

• No continuation is required.

Duration & Effectiveness


Other Fixture Perfection & Priority Issues


PMSI is Available for FixturesSee § 9-334(d).

Requirements to Obtain PMSI Priority:Security interest must be a PMSI.PMSI must be perfected by a fixture filing.PMSI must be perfected before or within 20 days after the goods become fixtures.

Effect:Provides secured party with priority in fixtures over prior recorded real property interests. Regular § 9-334(e)(1) rule applies against subsequent recorded interests.

Purchase-Money Security Interest


Required Information to Conduct SearchOffice to be SearchedDebtor NameRecord Owner Name (if Debtor has no interest of record)

Additional Helpful InformationDescription of Real PropertyProperty Identification Number (“PIN”)

ResultsGenerally only includes records filed on UCC formsResults limited to name searched

Tip: Leave Plenty of Lead Time

County-Level Fixture Searches


Option #1 – Filing on FixturesFiled in central filing office where debtor is located.Priority may be subordinated to recorded real estate interests.Effective for 5 years.

Option #2 – Fixture FilingFiled in real estate records where mortgage would be recorded.Priority based on file date against both filing on fixtures and recorded real estate interests.Effective for 5 years.

Option #3 – Record of MortgageFiled in real estate records where mortgage would be recorded.Priority based on file date against fixture filings.Takes priority over filings on fixtures, regardless of when filed.No fixed lapse date, effective until satisfied.

Summary & Comparison


Q & A

Paul HodnefieldAssociate General CounselCorporation Service Company2345 Rice St., Suite 230St. Paul, MN 55113Office: (800) 927-9801, ext. 61730Cell: (952) 649-1555Email: [email protected]