Daily Development for Tuesday, February 4, 2003

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

BANKRUPTCY; AVOIDANCE OF LIENS; UNPERFECTED LIENS: Michigan mobile home statute provides exclusive means of perfecting lien interest in a mobile home in that state, even if the mobile home has become a fixture and a mortgagee has a recorded mortgage against land upon which the fixture is set.

In re Kroskie, 2003 @L 1049379 (6th Cir. 1/14/2003)

Kroskies borrowed $80,000 to refinance their real estate, upon which was located a mobile home. Lender took a recorded mortgage on land and fixtures. The mobile home was connected to electrical lines, a private well, and a septic system, and was situation on a full cement- block crawl space foundation affixed to the land. The parties apparently stipulated that the mobile home had become a fixture.

When Kroskies filed for bankruptcy, their trustee attempted to avoid the mortgage lien to the extent that it attached to the mobile home, arguing that the lien should be bifurcated into that portion allocable to the land and that portion allocable to the mobile home. The trustee argued that Michigan's mobile home statute, which provides for registration of mobile homes and liens upon them, including permanently affixed mobile homes, is the exclusive method for perfecting mobile home liens in Michigan. Since mortgagee failed to register its lien against the mobile home, it was unperfected as to the mobile home.

The Sixth Circuit Court of appeals here agreed in that analysis, and permitted the trustee to avoid the mortgage.

The lender argued that the Michigan UCC provides expressly that liens against fixtures can be perfected by mortgage filings, and that the interpretation of the mobile home statute to preclude the validity of such a perfection is inconsistent with the plain meaning of the UCC. The court acknowledged that there appeared to be a conflict, but held that the mobile home statute, being more specific, prevailed over the general provisions of the UCC. It noted specially that the mobile home statute by its terms applied to permanently affixed mobile homes, and that its application to this situation cannot be avoided. Although the lender argued that this simply meant that registration under the mobile home statute was an alternate means of perfection, the court viewed this form of perfection as exclusive.

A dissenter from the three judge panel maintained that the statute simply states that filing under the Michigan statute is "equivalent to the filing of a financing statement with respect to the security interest under article 9 .

. . " - not a replacement of such a filing. Since mortgage recordation is, under the UCC, also an equivalent of a UCC filing with respect to mobile homes that have become fixtures, this judge argued, the mortgage recording is a permitted alternative.

Comment 1: Doesn't the dissent have a good point? First, the statutory language would appear to permit a construction authorizing mortgage recordation to be sufficient. Second, recognition of mortgage filings as attaching to fixtures is so well established generally that one would expect much clearer statement of intent, together with some statutory formula as to how to allocate the lien if the court really saw the mobile home lien as a separate requirement.

Comment 2: What does this case say about foreclosure of the mortgage? Although the mortgage is not "perfected" and can be avoided, shouldn't it still be valid between the parties for purposes of permitting realization upon the security? Or does the mobile home statute in fact invalidate unregistered liens?