Priority of Fixture Filer vs Mortgage Holder - Explained
What if Collateral Becomes a Fixture on Land Subject to a Mortgage?
Written by Jason Gordon
Updated at April 6th, 2023
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What is the scope of fixture priority rules?
The following rules govern the priority as between secured parties with security interests in fixtures and persons who claim an interest in real property to which the fixture attaches.
Purchase-Money Priority in Fixtures - The UCC 9-334(d) provides for priority for purchase money security interest in fixtures. To establish priority over conflicting security interests in the real estate, the following conditions must be met:
Recorded Interest in Real Estate - The debtor has a record interest in or possession of the real estate;
PMSI in Fixture - The secured party holds a purchase-money security interest in the fixture;
Prior Ownership of Real Property - The interest of the mortgage holder of the real property arose before the goods became fixtures; and
Prior Fixture Filing - The security interest is perfected by a fixture filing before the goods became fixtures or within 20 days thereafter.
The twenty-day grace period can cause issues for the secured party holding a PMSI in the equipment. If a third-party perfects a security interest in the real estate after the fixture is installed but before the PMSI secured party can make a fixture filing, the third-party has priority in the fixture. The way to maintain priority is either file before the fixture is installed or the PMSI holder files before any third parties file an interest in the real estate.
A security interest in a fixture (whether perfected or no) has priority over a conflicting security interest in real property if the owner of the real property has consented to the security interest or disclaimed an interest in the goods as fixtures in an authenticated record.
- Note: Also, per 9-334(h), a PMSI in a fixture is subordinate to a construction mortgage if the construction mortgage is filed before the goods become fixtures and the goods become fixtures before completion of the construction project. To maintain priority, the secured party in the fixture must meet the requirements of 9-334(e) and (f).
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Discussion Question
How do you feel about the requirement for a party with a PMSI in a good to file a financing statement within 20 days of the good becoming a fixture? Does this run counter to the objectives of providing priority to a PMSI over other security interests?
Practice Question
ABC Corp loans money to 123, LLC to purchase equipment for its business operations. ABC Corp attaches a security interest in the equipment and files a financing statement. 123 intends to install the equipment on its real estate that is subject to a mortgage held be First Bank. ABC initially forbids 123 from permanently installing the equipment, but they withdraw their objection when First Bank acknowledges ABCs rights in the equipment in an email. 123 later falls on hard times and defaults on all of its obligations. What is the priority of security interests in the fixture? What do you need to know about this situation to accurately answer this question?
Related Topics
- Secured Transactions Law (Intro)
- What is a Security Interest?
- Collateral
- Pledge as Collateral
- Collateralize
- Cross Collateralization
- After-Acquired Collateral
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Unsecured Loan Definition
- Unencumbered Asset
- What is a Secured Creditor?
- Unsecured Creditor
- What are the benefits of security interests for creditors?
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Uniform Commercial Code - Article 9
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- What is a mortgage?
- How does a security interest protect the mortgage holder?
- Lis Pendens
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- What is a Deed of Trust or Security Deed?
- What is a Land Sale Contract?
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- How does one continue perfection of a PMSI in non-consumer goods?
- What is Temporary Automatic Perfection in Proceeds from the sale of goods?
- How is a security interest created in Assignment of Accounts Receivable and Contract Rights?
- How does one perfect a security interest by Possession of the collateral?
- How does on perfect a security interest by Control of collateral?
- How does one perfect a security interest by Filing a Financing Statement?
- What authorization is required to file a financing statement?
- Where is the appropriate office to file a financing statement?
- Defeasance
- Continuation Statement
- What is Priority of a security interest?
- What role does perfection play in establishing the Priority of a secured party?
- What are the common conflicts arising as to priority of a security interest?
- What is the priority of parties secured by common law and statutory liens?
- Lien - Definition
- Blanket Lien Definition
- Unperfected Lien
- Possessory Lien
- Non-Possessory Lien
- Tax Lien
- Mechanics Lien Definition
- Construction Lien
- Cloud on Title
- What is the priority of a buyer of collateral that is subject to a security interest?
- What is required to be a buyer in the ordinary course of business?
- How does 9-320(b) protect consumers who purchase goods from other consumers?
- What is the Shelter Principle?
- What are the general Priority Rules for Conflicting security interests?
- Subordination Agreement
- Who has Priority in Proceeds from the sale of collateral?
- What is a secured party's priority in future advances to a debtor?
- What is the priority of a PMSI in goods (other than inventory and livestock)?
- What is the priority of a PMSI in inventory?
- What is the priority of conflicting PMSIs?
- What is the priority of security interests in fixtures?
- What is the scope of fixture priority rules?
