Priority of Security Interest in Fixtures
What Happens When Collateral Becomes a Fixture?
Written by Jason Gordon
Updated at July 6th, 2021
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Table of Contents
What is the priority of security interests in fixtures?Discussion QuestionPractice QuestionAcademic ResearchWhat is the priority of security interests in fixtures?
A fixture is a piece of personal property that is installed on and made one with real estate. The primary characteristic of a fixture is that it is not readily moveable. It has assumed a state of semi-permanence on the real estate. The downside to this situation is that it causes issues regarding the priority of security interests in the real estate and in the fixture. Under the UCC 9-334, a secured party with a security interest in a personal good that will become a fixture must make a fixture filing in the appropriate government office to establish the priority of her security interest in the fixture. Under 9-334(c), if the secured party fails to make a fixture filing, a security interest in the fixture is subordinate to a conflicting interest of the owner of real property or party holding a security interest in the real property.
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Discussion Question
How do you feel about the requirement to affirmatively claim priority of a fixture? Why do you think the law places the burden upon the owner of the fixture to maintain a security interest rather than the owner of the real estate to establish a claim in the fixture?
Practice Question
Alvin has a security interest in a piece of equipment he sold to Beatty. Beatty permanently installs the equipment on his real estate that is subject to a mortgage owed to First Bank. Whose security interest has priority in the equipment? What information do you need to know to accurately answer this question?