Back-to-school with UCC basics!
It’s back-to-school time for the kids, so we thought we’d devote this first week in September to UCC basics! On the chalkboard for today: fixture filings.
So what is a fixture filing? Fixture filings are made when articles found on real estate are of such a nature that they are considered attached, and are made part of that real estate. The most important factors in determining whether goods become sufficiently related, or attached, to real estate to qualify as fixtures include:
- Degree of physical affixation and ease of removal;
- The intention of the parties;
- The reasonable expectations of a third party vendee of the property; and
- The extent to which the presence of the fixtures is critical to the functioning of the real estate.
One advantage of a fixture filing is that a secured party may actually acquire a position that has priority over a pre-existing mortgage. Another advantage is that a fixture filing is effective against both real estate interests and personal property claimants.
Fixture filings are controlled by additional requirements that differ from state-level UCCs:
- Must show it covers that type of collateral;
- Must state it is to be filed in the real estate records;
- Must contain a legal description of the real estate; and
- Must indicate the name of a record owner if other than the debtor.
Types of collateral:
- Built-in (e.g., walk-in freezer)
- Bolted-down (e.g., commercial A/C unit)
- Structure built around (e.g., new windows for a house)
So where to file a fixture filing? It is important to file at both the State and County levels. Why? While a fixture filing is effective against personal property claimants, it is not the only way to perfect a security interest in fixtures. Because fixtures are personal property, a standard RA9 compliant filing in the UCC office will perfect a security interest in fixtures. And although a UCC filing is not effective against real estate claimants, it is effective against competing personal property creditors and lien creditors who claim an interest in the fixtures. Therefore, many lenders choose to complete both a fixture filing at the County level and the standard RA9 compliant filing at the State level.
Thanks for reading the first entry in our UCC basics series! Check back tomorrow to learn about UCC-3s, including common mistakes and solutions.