COTA-Related Article 9 Revisions– Definition
off Certificate
C tifi t off Title
Titl
 Issue: Does the current definition of "Certificate
Certificate of Title
Title"
accommodate:
 Electronic lien notation systems?
 Certain state certificate of title statutes?
 Certificate
ifi
off Title
i l Definition
fi i i in
i § 9-102(a)(10):
( )( )
 Means a certificate of title with respect to which a statute provides for the
security interest in question to be indicated on the certificate as a condition
or result of the security interest’s obtaining priority over the rights of a lien
creditor with respect to the collateral.
May 2010
COTA-Related Article 9 Revisions– Definition
off COT ((continued)
ti
d)
ELT Systems:
 Electronic notation of security interest in state records as alternative means of
perfecting a security interest where no paper COT is issued.
 In many cases a paper COT is not issued reflecting the security interest.
 Does
D "certificate"
"
f
" in the
h COT ddefinition
f
includes
l d electronic
l
recordd or records
d
with the title in state’s system?
 Some ELT statutes support this interpretation.
interpretation
 Some do not.
May 2010
COTA-Related Article 9 Revisions– Definition
off COT ((continued)
ti
d)
Resolution To ELT Issue:
 Add Following
F ll i tto COT Definition:
D fi iti
"The term includes another record maintained as an alternative to a certificate
of title by the governmental unit that issues certificates of title if a statute
permits the security interest in question to be indicated on the record as a
condition or result of the security interest’s obtaining priority over the rights
of a lien creditor with respect to the collateral."
May 2010
COTA-Related Article 9 Revisions– Definition
off COT ((continued)
ti
d)
ELT Resolution (cont’d) - Add Following to Comments to COT Definition:
The first sentence of the definition of "certificate of title" includes certificates
consisting of tangible records, of electronic records, and of combinations of tangible
and electronic records.
In many States, a certificate of title covering goods that are encumbered by a security
interest is delivered to the secured party by the issuing authority. To eliminate the
need for the issuance of a paper certificate under these circumstances, several States
q
a State agency
g y to
have revised their certificate-of-title statutes to ppermit or require
maintain an electronic record that evidences ownership of the goods and in which a
security interest in the goods may be noted. The second sentence of the definition
provides that such a record is a "certificate of title" if it is in fact maintained as an
alternative to the issuance of a paper certificate of title, regardless of whether the
certificate-of-title
ifi
f i l statute provides
id that
h the
h recordd iis a certificate
ifi
off title
i l andd even if
the statute does not expressly state that the record is maintained instead of issuing a
paper certificate.
May 2010
COTA-Related Article 9 Revisions– Definition
off COT ((continued)
ti
d)
Issues with State COT statutes:
 Under Article 9,
9 a "certificate
certificate of title
title" only counts if the COT statute provides
that the security interest is to be indicated on the certificate as "a condition or
result of the security interest’s obtaining priority over the rights of a lien
creditor."
 Do all state COT statutes qualify under this definition?
 Based on first review:
 Seven
S
states appear to say nothing
hi about
b priority
i i over lilien creditors.
di
 Most states say perfection occurs upon delivery of the COT application paperwork
and fee to state agency that issues COTs.
 Security interest on the title clearly not a "condition" of obtaining priority.
 Many do not clearly state that listing the security interest on the COT is a "result" of
obtaining priority.
May 2010
COTA-Related Article 9 Revisions– Definition
off COT ((continued)
ti
d)
Resolution Scope Issue - Add Following to COT Definition Comments:
"St t t often
"Statutes
ft require
i applicants
li t for
f a certificate
tifi t off title
titl to
t identify
id tif allll security
it iinterests
t t on
the application and require the issuing agency to indicate the identified security interests on
the certificate. Some of these statutes provide that priority over the rights of a lien creditor
(i.e., perfection of a security interest) in goods covered by the certificate occurs upon
indication of the security interest on the certificate; that is, they provide for the indication of
the security interest on the certificate as a "condition" of perfection. Other statutes
contemplate that perfection is achieved upon the occurrence of another act, e.g., delivery of
pp
to the issuingg agency,
g y, that "results" in the indication of the securityy interest
the application
on the certificate. A certificate governed by either type of statute can qualify as a "certificate
of title" under this Article. The statute need not expressly state the connection between the
indication and perfection. For example, a certificate issued pursuant to a statute that requires
applications to identify security interests,
interests requires the issuing agency to indicate the
identified security interests on the certificate, but is silent concerning the legal consequences
of the indication would be a "certificate of title" if, under a judicial interpretation of the
statute, perfection of a security interest is a legal consequence of the indication."
May 2010
Last Year – In re Clark: Texas Bankruptcy Decision
Mandates Vehicle Re-Titling
I re Clark
In
Cl k Contracting
C t ti Services,
S i Inc.,
I
2008WL 5459818 (Bankr.W.D.Tex.
(B k W D T 2008):
2008)
 Holds that the Texas COTA requires assignees of security interests in motor
vehicles to apply for a new title showing the name of the assignee as lienholder.
lienholder
Failure to do so is fatal if the vehicle owner files bankruptcy.
 Potential negative impact on securitizations of motor vehicle dealer paper – Lose
to trustee in customer bankruptcy.
 Too expensive
p
to gget new title issued reflectingg securitization trust as secured ppartyy & no
one thought it was necessary – Usually not done.
May 2010
P t Cl
Post
Clark
k Developments
D l
t
 Texas
T
L
Legislature
il
Changed
Ch
d iits COTA – Effectively
Eff i l Over-Ruling
O
R li the
h
Clark Case.
 Section 6 of 2009 Senate Bill 1592: This Act is intended to clarify that under existing
law, an assignment of a recorded security interest may be recorded on the title,
law
title but does
not have to be recorded on the title to retain the validity, perfection, and priority of the
security interest securing the obligation assigned to the assignee.
 Clark Decision Appealed to District Court in W. D. of Texas.
 Three Bankruptcy Decisions Disagreeing with Clark.
 In
I re Johnson,
Jh
407 B.R.
B R 364 (Bankr.
(B k E.D.
E D Ark.
A k June
J
2009)
2009).
 In re Gaines, 2009 Bankr. LEXIS 2378 (Bankr. E.D. Ark. August 2009).
 In re Scott, 2010 Bankr. LEXIS 797 (Bankr. S.D. Ind. March 2010)
May 2010
P t Clark
Post
Cl k Developments
D l
t (cont’d)
(
t’d)
In Re Scott:
• One of about 60 Lawsuits Brought by Trustee
Trustee’ss in S.D. of Indiana attempting to
invalidate security interests assigned to securitization trusts.
•
Start with UCC 9-310(c) Rule for Assignments of Security Interest Perfected
b Filing
by
Fili a Fi
Financing
i statement:
"If a secured party assigns a perfected security interest or agricultural lien, a filing under
this article is not required
q
to continue the perfected
p
status of the securityy interest against
g
creditors of and transferees from the original debtor."
•
Court Followed Comment 4 to UCC 9-310(c):
"Unless the [COT] statute expressly provides to the contrary, the security interest will
remain perfected against creditors of and transferees from the original debtor, even if the
assignee takes no action to cause the certificate of title to reflect the assignment or to cause
its name to appear on the certificate of title."
May 2010
P t Clark
Post
Cl k Developments
D l
t (cont’d)
(
t’d)
In Re
R SScott ((cont’d):
’d)
•
Court correctly found there was no express statement to the contrary
in Indiana COTA – Applied Rule in 9-310(c) and Chrysler wins.
wins
•
Court takes trustee to task:
""Many off the
h T
Trustee's' arguments are not particularly
l l cogent, andd the
h T
Trustee's' bbriefs
f
are replete with conclusory and self-serving statements."
"The Court is also troubled byy the Trustee's seemingg unwillingness
g
to acknowledge
g or
appreciate the significance of § 9.1-310(c) and its official commentary."
"Even giving them the most generous of readings, all of the Trustee's arguments are, in
a word,
word implausible.
implausible "
May 2010
Relationship between Article 9 and State COTA
 Article 9 defers to the COTA for:
 The method of perfection (9-311(b)) – i.e. filing an application to have your
securityy interest noted on the title or actuallyy getting
g
g it noted on the title.
 The duration and renewal of perfection (9-311(c)).
 Otherwise, the security interests are subject to Article 9 (9-311(c)).
In applying Article 9 to COT, compliance with the COTA is the
"equivalent to the filing of a finance statement" (9-311(b)) .
May 2010
Relationship between Article 9 and State COTA (cont’d)
UCC 9-311 Comment 6 – Approach to Applying Article 9 to COTs:
 Some rules, such as the rule establishing time of perfection (Section 9-516(a)), left to
COTA.
 Expressly applies some Article 9 filing rules to perfection under COTA. (For example,
Section 9-505).
 Makes
a es other
ot e Article
t c e 9 rules
u es applicable
app ca e through
t oug the
t e "equivalent
equ va e t to … filing"
g phrase
p ase in
Section 9-311(b).
 Occasional comments explaining how particular rules apply when perfection is
accomplished
p
under COTA. (For
( example,
p , Comment 4 to 9-310.))
 The absence of a comment indicating that a particular filing provision applies to
perfection pursuant to Section 9-311(b) does not mean the provision is inapplicable.
May 2010
Contact Information
Tom Buiteweg
Hudson Cook, LLP
121 W
W. W
Washington,
hi t
Suite
S it 300
Ann Arbor, MI 48104
Phone (734) 222-6025
M bil (734) 649-2655
Mobile
649 2655
email [email protected]
May 2010