Perfection, Priority, and Best Practices
In this webinar, we’ll explain the different methods a secured party may use to perfect a security interest in fixtures and the priority implications of each option. In addition, attendees will learn a variety of best practices for filing and searching fixture-related UCC records.
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Annie: Hello, everyone, and welcome to today's webinar "Fixture Filing: Perfection, Priority, and Best Practices." My name is Annie Triboletti, and I will be your moderator. Joining us today is Paul Hodnefield. Paul is the associate general counsel for CSC, where he is responsible for advising the company regarding real estate recording, notary, Uniform Commercial Code, and other public record transaction services. And with that, let's welcome Paul.
Paul: Thank you, Annie. As Annie said, my role at CSC is amongst other things to be the subject matter resource for all things related to the UCC search and filing services that we provide. And in doing that, I gather a lot of information from a lot of different sources. And one of the funnest parts of my job is to be able to share that. And that's what I'm doing today.
Now in my role, I'm very active in the industry. I co-chair a task force for the American Bar Association on Filing Office Operations and Search Logic. I'm an active participant with IACA, the filing officers' organization, and their secured transactions section. I monitor case law. I monitor legislation on a daily basis. And I'm on the phone a lot with filing offices around the country doing a lot of troubleshooting and things like that. And, in fact, when I am on the phone with filing offices, it seems more often than not I'm dealing with the county offices in relation to issues related to fixture filings.
And, you know, that brings us to the subject matter of our presentation today. And that's because dealing with fixtures under the UCC can be a challenge, not just for the filers, but for searchers and even the filing offices. And there's a number of reasons for this. One, fixtures are a unique type of goods. They have attributes of both personal property and real property. Also, there are multiple methods for perfection of a security interest in fixtures, and that can create a little bit of confusion sometimes. And, finally, a secured party can never really know whether they're dealing with goods that are fixtures, at least until after it's too late to do anything about it.
So, with these uncertainties, my goal today is to give you all a better idea of the perfection process when the collateral involves fixtures. And, specifically, what I'm going to cover today, I'll begin with some essential concepts about the fixtures and the process. I'll move on and discuss classification of goods as fixtures, how the courts figure that out. I'll cover the different perfection methods that are available for security interest in fixtures under the UCC. And I'll talk about the basics of fixture filing, such as where to file, and, you know, what to file, and so forth. And then, I'm going to wrap up by talking a little bit about amending fixture filings because there are some particular challenges involved there.
Now, along the way, I'll point out some of the best practices for dealing with these records when the collateral includes fixtures. And while my focus today will be put on fixtures, much of what I'm talking about today will also be applicable to financing statements filed in the real estate records that cover timber to be cut and minerals to be extracted. And when I reach the very end of the presentation, there should be time where I can take some of your questions as well.
So, with that, I'm going to move along and talk about some of the essential concepts involved in fixture filing.
First of all, the threshold issue in any fixture discussion is what is a fixture. It's not always that easy to tell. And the courts have developed a common law test, which I'll cover with you in a few minutes. This test has arisen not just in the secured transactions area, but it comes out of other areas of law as well, such as tax. Sometimes there's different fixtures and other types of personal property are taxed at different rates. So it's important to determine whether a particular property falls into a particular category. So it comes from a variety of law sources that went into developing this test.
When it comes to the law governing security interest in fixtures, there's actually two that overlap. Because fixtures have attributes of both personal property and real estate, both UCC Article 9 and real property law overlap when it comes to security interest in fixtures. And that's important to understand because that influences how security interest in fixtures are perfected and the methods used.
Next, another important concept to understand is that filing offices often struggle in dealing with UCC fixture filings. And there's a number of reasons for this.
One is that the land record management systems used at the county real estate level are not designed for notice filing. They are designed for the real estate chain of title. Their document filing systems where the actual documents that create ownership and encumbrance interests in real property are filed of record, and it's through an examination of a series of conveyances that the rights in property are established. Whereas the UCC record is merely a notice. It's not part of a chain. It doesn't impact the chain of title, and fitting it into that chain of title system can be a challenge sometimes, and it does have an impact on some of the contents that go in there.
Likewise, the systems are focused differently. Real estate land record management systems are focused on property, a particular piece of property and who has interest in that property. Whereas the UCC notice filing system at the state level is focused on who and then what that who has, or what that person has. So there's different focuses, and because of that, the indexing systems are different and it does create additional challenges to indexing notice records in a document filing system.
Also, the Article 9 duties for a filing office, those that a filing office must adhere to under Article 9 are oftentimes not intuitive, and they are different from the standard operating procedures for real estate documents. And bear in mind that the filing offices at the county level are dealing with 99.9% deeds, mortgages, and assignments, and satisfactions. They aren't dealing with UCC fixture filings very often. And because of that, they don't have experience with it. They don't have the time to spend studying Article 9 and really understanding the duties. And for this reason, they sometimes impute real estate concepts to financing statements filed under Article 9.
And finally, the filing offices frequently realize this. They're aware of the limitations that they have when it comes to dealing with fixture filings. And, unfortunately, they don't have anybody to turn to provide them with training on their duties under Article 9.
For this reason, there have been some filing offices around the country, and even one recorder's association, that have advocated for central filing of fixture filings. Whether that will ever happen or not, I don't know. It would certainly simplify the process. But just to understand that the filing offices, really through no fault of their own, struggle with this because it's such a small part of what they do and the duties are so much different than their other duties.
One other essential concept has to do with priority. As I mentioned, there's three different methods of perfecting a security interest in fixtures, and they can have different impacts on priority. And, in fact, in rare cases, you can wind up with a circular priority. I'll talk about priority in more depth in a minute or two.
So let's go on and talk about what exactly is a fixture. How do you know that you are dealing with a fixture? Well, that answer gets a little convoluted. So we'll start with the Article 9 definition. Article 9 does define fixtures, and fixtures means goods that have been or will become so related to particular real estate that an interest in them arises under real estate law.
So, really, the big issue involved here is when do goods become subject to an interest arising under real estate law? And it's to answer this question that the courts have come up with the three-part test. It's a common law three-part test. And I think the best way to explain it is to use an actual example. And we'll use a case called Renak v. Feest.
This was a case about 14 years ago out of Wisconsin. And it involved the sale of a parcel of land that had a shop building on it. Renak was the owner of this parcel and the building. The building was an old building. It had been constructed more than 100 years before and was originally used as a blacksmith shop. At the time it was built, there was installed in this shop a great big gasoline motor that was used to power the tools of the blacksmith's shop. This motor was about 6' long and 3' high. It was big and heavy, just it was a monster. And it had been installed in the shop. It was bolted into the concrete floor.
Well, after a few decades, the building stopped being used as a blacksmith shop and was used for other purposes, but the engine continued to sit in there for many decades. Well, eventually, Renak, the owner of the property, decided to sell it. And so he entered into an agreement to sell it to Feest. Now, the terms of the sale were that Feest was buying, you know, the land, the building, and all fixtures in the building, but Renak retained ownership of all personal property. And so the sale went through and everything was fine.
And then, actually, I think it was a few years after the sale, Renak approached Feest and said, "You know, that motor in there, I am going to take and donate to a museum. It's my personal property under the terms of the sale, so I'm going to donate it to a museum." But Feest said, "Wait a minute. No, it's a big heavy thing that's bolted to the concrete floor. It's got to be a fixture, and it's mine."
So they got into a dispute over who actually owned this thing. And it all turned on whether it was a fixture or whether it was personal property. So Renak brought suit, and it wound up in court, and the court had to decide is this a fixture or is it something else.
Well, the court decided to follow the common law three-part test. And that three-part test is, first of all, is it actually connected to the property? You know, is it made a part of that real property? And is it furthering the value of that property for the purpose for which the property is used? And, finally, and this was the most important one, and it tends to be the most important one when this test is applied, and that is, what was the intention of the party who caused these goods to be attached to the property?
Well, in this case, this great big engine, the court took a look at the first part of the test, is it actually connected to the realty? And the court acknowledged, "You know, this is a big engine, and it's not going to be easy to move, but it can be unbolted from the concrete floor. And it may be heavy, but there are ways to move heavy things." So it can be removed, and it can be removed without, you know, anything but de minimis impact on the building itself. So the court said, "You know, this weighs in favor of it being not a fixture."
So then the court looked at the second part of the test, is it furthering the use for which the real property is being used. In other words, does it add to the value of the purpose of the property? Well, maybe when it was attached, because as the power for the blacksmith shop, it's certainly added value to the purpose of the use of the real estate. Without it, the blacksmith shop wouldn't have been able to run power tools and would have been very inefficient, not competitive, and all that stuff. But bottom line is the building had not been used as a blacksmith shop in decades, and therefore that motor didn't further the use of the shop at all. It was actually more in the way than it was a help to the shop. So the court said, "Yeah, this weighs in favor of it not being a fixture."
And as far as the third part of the test goes, the thing had been attached over 100 years earlier, that big motor. And the court said, "There isn't any evidence one way or the other, there's no evidence that whoever attached it intended for it to be permanent. And, on the other hand, there's no evidence that it wasn't intended to be permanent." So in the absence of evidence that it is to be permanent, the court said that weighs against it being a fixture. So the court ultimately decided that it was not a fixture and Renak was entitled to remove the engine and donate it to the museum.
But the third part of the test is one the courts tend to give the greatest weight to. But it boils down to an evidentiary issue, is there evidence of the intent of the party that attached the item to the real estate.
So, you know, talking about that case, let's go on and apply this three-part test to some other circumstances, and let's see what the courts have found as they've applied this test to different types of things.
First of all, we'll go through a list of things that the courts have found to be fixtures after applying the three-part test. First of all, grain bins on a farm. Courts found that grain bins were a fixture because, when you look at the three-part test, they were intended to be permanent, they furthered the use of the farm, and, you know, they were attached to the land.
Courts have found airplane hangers to be a fixture under this three-part test.
Even theater chairs. These were kind of similar to the motor that we just talked about. They were bolted to a concrete floor, but they were actually probably far easier to remove than that big engine was. But when you weigh the three-part test, first of all, were they actually attached to the realty? Not all that firmly, so that might have weighed in favor of them being not fixtures. But did they further the use of the real property to which they were attached? And the answer is yes. If you have a theater, you need to have theater chairs there in order for the property to be used for that purpose. So that weighed in favor of them being a fixture. And then, finally, the intent of the parties. There was evidence that the person that installed them in the theater intended for them to be permanent because it's a theater. You've got to have a place for people to sit.
Irrigation equipment on a farm, courts have found to be fixtures. And, finally, a vacuum cleaner hose has been found to be a fixture. There was a case where this involved one of those massive built-in vacuum systems, a central vacuum system in a building that ran through the walls and you walked around from room to room with the hose, and plugged it in, did your vacuuming, and moved on to the next room. And in this case, they found that the vacuum itself was a fixture. And being that the vacuum couldn't function without the hose, the hose was deemed to be a fixture as well.
So that's what the courts have found to be fixtures. That might help provide some guidance.
Now, let's look at what courts have found not to be fixtures after they've applied this three-part test. There are cases out there where grain bins have been found not to be a fixture after applying the three-part test. The courts found that an airplane hanger is not a fixture after applying the three-part test. You might be noticing a pattern here. We've already covered that big engine from Renak v. Feest bolted to the floor just like the theater chairs, but found not to be a fixture because of lack of intent. Actual buildings, hog buildings were found to be not fixtures on a farm. And a bathtub, a custom-made bathtub that was installed in a house found not to be a fixture after applying this three-part test.
So what does this all tell us? Well, bottom line is that the determination of whether goods are fixtures is a very fact-specific inquiry, and it's always going to be determined on a case-by-case basis. There is no hard and fast rule that any goods, in particular, are fixtures or not fixtures. So the courts are always going to figure this out on a case-by-case basis, and that means it is impossible to predict with a 100% accuracy whether particular goods will be fixtures when they get into court. And for that reason, if there's any question as to whether goods are fixtures or not, it's necessary to perfect the security interest as though both they are fixtures and also as if they're some other form of personal property, such as equipment. So you might have to take a belt and suspenders approach with a particular collateral if you aren't 100% sure what it is.
Now, when it comes to perfection methods in fixtures, this is where, unlike some other types of collateral, there are three different perfection methods by filing under Article 9.
The first, it doesn't really have an official name. It's not a defined term or anything like that, but really what it is is just filing a UCC financing statement that covers fixtures. And in this case, it's filed as a regular old UCC financing statement. And that means it's filed in the central filing office of the state where the debtor is located, because the law of the debtor's jurisdiction is going to govern perfection and priority. It's also filed in the central filing office, and it has to indicate merely that it covers fixtures or something else that includes fixtures, like goods, all assets, anything like that.
And to be sufficient, it has to comply with UCC Section 9-502, which doesn't have a lot of requirements. You've got to get the name of the debtor, name of the secured party, and an indication of the collateral. Now, to get it filed, of course, you need the address of the debtor and secured party. But that's all that's required to get it filed at the secretary of state or the other central filing office of whatever state's involved. So it's just a basic financing statement.
Now, the name of the debtor has to comply with the debtor name rules for 9-503(a). So it's got to be the exact correct name of the debtor. But other than that, the rules are exactly the same as for filing on equipment or accounts or inventory or anything like that. The only thing is the collateral statement must include something that would cover fixtures, be it specifically mentioning fixtures, or all assets, all personal property goods, anything along that line.
And with these, because they're filed in the central filing office of the state where the debtor is located, you can cover all types of collateral that can be perfected by filing in that office. So the same financing statement can cover fixtures, inventory, accounts, equipment, intangibles, whatever you want it to cover, anything that could be perfected by filing centrally.
Now, if it's that simple, of course, why would you need anything else? Well, it has to do with priority. Priority under Article 9 for these, the normal priority rules apply with respect to competing UCC security interest. So against other UCCs, the general 9-522(a) priority applies, which means that priority ranks from the earlier time of filing or perfection.
The issue is that when perfecting by this method, there is a provision in 9-334 that subordinates a security interest in fixtures perfected by filing at the state level to any recorded encumbrance in the real estate records. So it's going to be subordinate to recorded real estate encumbrances. That's under Section 9-334. Now, if you're not worried about real estate encumbrances and your biggest concern is going to be that, you know, a lien creditor, or a bankruptcy trustee, or a competing security interest under the UCC, generally, it's not an issue. But, you know, if there's worry about whether a recorded encumbrance would take priority, this probably is not the best way to perfect.
The second method of perfection is also using a UCC financing statement, but by filing it as a fixture filing. Now, unlike the first method I covered, a fixture filing is a defined term under Article 9, and it means a financing statement that's filed in the real estate records covering goods that are to become fixtures. And it has to satisfy the same requirements as other UCCs, 9-502(a), name of the debtor, name of the secured party, indication of collateral. And in addition to that, it has to satisfy 9-502(b).
9-502(b) has some additional requirements, and those requirements are necessary to make the financing statement sufficient. And they include it has to be filed in the real estate records, the UCC 9-501(a)(1) filing office, and it has to indicate that it covers that type of collateral. The addendum form for the UCC is used for this purpose. There's checkboxes, so you can check to indicate it covers fixtures.
It has to indicate that it's to be filed in the real estate records. It needs to provide a description of the related real property, and if the debtor does not have an interest of record, then it's necessary to provide the name and address of a record owner of the property. And the reason here is that if there's no name of record on the UCC, they can't get it into the grantor-grantee index for retrieval. They need to be able to retrieve it by a record owner name. So this has to do with the challenge of putting these UCC notices that are debtor-focused into a land-focused indexing system.
When it comes to priority, fixture filing will have the same general priority rules under Article 9 will apply to it with respect to other UCC records. So against filing at the state level or another fixture filing, the financing statement, you know, priority will rank from the first file or perfect.
With respect to recorded encumbrances in the real estate records, it will also get priority relative to the recording time against those encumbrances. So it gives a little leg up on priority with respect to competing real estate interests if it's filed in the real estate records. That's the purpose of the fixture filing, is it will get to priority relative to real estate encumbrances in addition to priority relative to other UCC records.
And the third method of perfection by filing under Article 9 is actually the recording of a record of mortgage. Now, a record of mortgage is broadly defined under Article 9. It means, of course, the traditional mortgage, but it can also include any type of voluntary conveyance of a security interest, including a deed of trust or other type of encumbrance like that.
Now, a record of mortgage can be effective as a financing statement filed as a fixture filing if it satisfies certain requirements. It has to satisfy the same requirements as a UCC financing statement under 9-502(a) and 9-502(b). It has to satisfy financing statement sufficiency, the fixture filing sufficiency, and in addition to that, it has to indicate the goods or accounts that it covers. In other words, it has to say it covers fixtures to be able to be effective as a fixture filing. And the goods that are involved either already have to be or have to become fixtures in the particular real property that's covered by the record of mortgage.
And then, finally, it has to be duly recorded, and it would be recorded in the same office where a UCC fixture filing would be recorded as well.
Now, the one thing that differs from a record of mortgage from the UCC records I mentioned is that the record of mortgage doesn't have to indicate that it's to be filed in the real estate records, mainly because where else do you file it? By definition, a mortgage is going to be filed in the real estate records.
Now, when it comes to priority, it's going to take priority over a filing on fixtures that was made at the state level in the central filing office of the state where the debtor is located. However, it'll be subordinate to any prior fixture filing with respect to the fixtures. So if there's a UCC fixture filing in the real estate records ahead of it, that will take priority over a record of mortgage that's effective as a financing statement filed as a fixture filing.
All right. So let's talk a little bit about some of the basics of UCC fixture filings. First of all, when is it necessary to make a fixture filing as opposed to a record of mortgage or a filing at the state level on fixtures?
Well, one idea is when fixtures are a valuable part of the collateral, something that, you know, is a significant portion, then a fixture filing might be required unless there's a record of mortgage that covers it and is sufficient to be effective as a financing statement filed as a fixture filing. But if the fixtures are a valuable part of that collateral, it wouldn't be enough to simply file a financing statement with the secretary of state of the state where the debtor is located, because the risk would be too high that some, you know, recorded encumbrance would take priority over it. So that's a good time to file a fixture filing.
Another one, and this is an important one. People don't always realize it, but if the record of mortgage provides a debtor name for the mortgagor that is different than the name that would be required for a UCC fixture filing, then a fixture filing may be necessary to do separately. And the reason is that there are times where the name that is sufficient under real estate law is not sufficient under Article 9 and therefore would not be sufficient to perfect an Article 9 security interest in the fixtures.
For example, the proper way to provide a certain debtor name on a mortgage might be Jane Doe as Trustee of the XYZ Trust. Yet, under the UCC, that name would not be sufficient because the name of the trustee is not sufficient as the name of the debtor for purposes of the financing statement. It has to be either the name of the settlor or the name of the trust, if the trust has a name. So, in that type of case, it might be necessary to file a separate fixture filing to ensure that the correct debtor name is there because the mortgage might not be effective as a UCC filed as a fixture filing.
If there's a purchase-money security interest involved in the fixtures, Article 9 provides that there is a purchase-money security interest available for fixtures, but it must be perfected by a fixture filing. Filing at the state level is not going to be sufficient in that case.
And finally, sometimes, just for peace of mind, it makes sense to take the belt and suspenders approach and file both a fixture filing and either a state-level filing or a record of mortgage. Much will depend on the particular facts and circumstances of the transaction which would be used in a particular case, or maybe more than one in a particular case.
The next thing to consider is the filing location for fixtures. I've already touched on this a little bit. But if you're taking fixtures as part of a normal UCC collateral statement when filing in the central index of the state where the debtor is located, the way to arrive at that is the same way as it would be, say, for equipment or accounts or anything like that. You look to what law governs perfection and priority. In this case, it would be the law of the state where the debtor is located.
And then, you look to the 9-501(a)(2) office in that state. And that is typically going to be the secretary of state or other central filing office for the state, except in, say, Georgia, where all the filing is done locally, or Louisiana, filing offices are all local. But in every other state, there's a central filing office.
For a fixture filing, it's a little bit different, because, with a fixture filing, we're dealing with real property, the overlap with real property law. And so, here, the law governing perfection of a security interest perfected by a fixture filing is the law of the state where the goods are located, in other words, where the real property is located.
And that's going to require looking at the 9-501(a)(1) office of the state where the goods are located, and that's going to say in all states but I think Louisiana, it says the office designated for the filing or recording of a record of mortgage on the affected real property. So the real estate records, that's what it boils down to.
And for a record of mortgage, well, by definition, it is a real estate record, so it's going to be filed in the real estate records where the affected real property is located. And that will be exactly the same office as for a fixture filing, the 9-501(a)(1) office.
As far as the content requirements for a fixture filing, they have to indicate that they cover the type of collateral. The reason for this indication is that the collateral may not describe fixtures. It may describe all assets. It might describe goods or something like that.
So there is a method to make this indication when you file a fixture filing. Almost always it will require the filing of a UCC1 addendum. And that addendum has fields for the real estate information, and there are checkboxes to indicate the type of collateral filed at the county, including fixtures, timber, and minerals to be extracted.
That same addendum has a checkbox to indicate to file in the real estate records. This is mandatory if it is to be filed in the real estate records for two reasons. Number one, there are a number of jurisdictions where if it's not checked, it will be filed in a different index and not in the real estate records, and it will not be found on a search. And in that case, the secured party is probably going to be the one that bears that risk.
The second is that because the requirement is found in Section 9-502 and 9-502 provides the requirements for sufficiency of a financing statement, failure to check the box arguably means that the financing statement filed as a fixture filing is not effective because it's not sufficient. And while I haven't seen any cases challenging a fixture filing on those grounds, it could happen, so don't give them the opportunity.
As far as the description of the real property goes, Article 9 simply says it has to reasonably describe the real property. So as a description of the real property, in the official comments, it says it just has to reasonably describe it. And that's all fine and dandy. But as a practical matter, the counties need a more specific description of the real property. And it varies a little bit from county to county, but most of them require a legal description so that they can get this associated with the right piece of real property.
In addition to the legal description, many counties also require the property identification number for various reasons. Sometimes the indexing is tied to the property identification number. In other cases, that's used for tax purposes, and it has to get a tax clearance before it can be recorded and all sorts of things like that. So oftentimes, if you have it, it's a good idea to put the PIN number on there. Many counties do require it.
The name of the record owner. As I said earlier, if the debtor does not have an interest of record, maybe because the debtor is the beneficiary of a trust that owns the property or the debtor is a lessee with an unrecorded lease. There, they have rights in the property, but they don't have an interest of record, and without an interest of record, there's no way for the county to attach the UCC to the system correctly so that it can be retrieved. And therefore, in that case, they require a name of the record owner so that they can hook it on to that chain of title where people can find it. So it's important if the debtor doesn't have that record to provide the record owner name and address.
Now, this is the applicable portion of the UCC1 Addendum form. If you look closely at it, you'll see what I've been describing as far as, you know, where the information could be provided. The indications required by 9-502(b)(1) that it covers the collateral of the type, they are found right here. You can check fixtures timber to be cut or as extracted collateral.
The file in real the estate records box is here as well. So is a field for the legal description. Now, this size field is adequate for very small legal descriptions. For example, you know, lot 1 block 5 of something addition, you know, Minneapolis, Minnesota. But if you get into a metes and bounds description or some longer descriptions, you wind up having a problem spitting it in there. There's nothing wrong with attaching an exhibit with a legal description. I would recommend in all cases to incorporate it by reference in this field. And that way there's no question that that legal description ties to this particular record.
And then, finally, there is the field for the name and address of the record owner under 9-502(b)(4), and you can provide that in here, or you could incorporate a schedule or exhibit. Now, it only requires the name of a record owner, not the record owners. It wouldn't hurt to provide as many of them as you know or as you can come up with, if it is required.
Now, once it's filed, a UCC financing statement that covers fixtures and is filed at the state level, the central office of the state in which the debtor is located, that is effective under the general UCC duration and effectiveness rules for five years. And it can be continued for additional five-year periods by filing a continuation statement every five years. It's no different than a financing statement that covers equipment or accounts. It's just five years, file a continuation to keep it effective. And they can be continued every five years, you know, forever.
A fixture filing is also effective for the general five-year duration and effectiveness rule under Article 9. There are no special duration and effectiveness rules for fixture filings. It has to be continued every five years. And I constantly get questions about this. You know, somebody says, "I've been told that fixture filings are effective for 20 years, or they don't lapse," or something like that. Or I hear, "The filing office told me I don't need to file a continuation because they never remove the record from the index."
Well, all this is well and good, but bottom line is the law says it lapses at five years unless a continuation statement was filed. There are no exceptions to that. They will lapse.
I take that back. There is one exception, maybe two. Well, one, and that's Wyoming. And it's not an exception for fixture filings, it's an exception for UCC records generally. The default rule in Wyoming is that UCC records are effective for 10 years, and a continuation statement extends the effectiveness for an additional 10 years. So the issue here is that the general rule is still in place, it's just that the general rule is 10 years. There's no special exception for fixture filings. But people get confused on this, and filing offices get confused on this because they deal with real estate records all day, every day.
And when it comes to real estate records, like the record of mortgage, the duration and effectiveness rule under Article 9 is different. A record of mortgage that is effective as a financing statement filed as a fixture filing is effective until released, satisfied, or otherwise terminates by its own terms. There is no continuation statement required. In fact, there isn't one that can be filed that would have any effect. So it's important to remember that while a record of mortgage is effective as a financing statement filed as a fixture filing, it is not a financing statement. It is not a financing statement even filed as a fixture filing. It is nothing more than a real estate record, and, as a result, it's subject to real estate law for its duration and effectiveness.
And that brings us to purchase-money security interests. The purchase-money security interest is available in fixtures. There are some special rules for this under 9-334. In order to get a purchase-money security interest in inventory, the security interest must be a purchase-money security interest, meaning that the lender must be enabling the debtor to obtain rights in the collateral and it must be perfected by a fixture filing. Filing at the state level where the debtor is located is not going to be sufficient to perfect the purchase-money security interest in fixtures.
It must be perfected before or within 20 days after the goods become fixtures. This is different from other types of purchase-money security interests. A purchase-money security interest in other types of goods, with the exception of inventory and livestock, is perfected by filing before or within 20 days after the debtor receives possession of the collateral. This rule is not based on possession, it's based on when the goods actually become fixtures. So they could sit there at the debtor's location for a long time before they actually become fixtures.
I recommend as a best practice trying to perfect as early as possible and not trying to push the deadlines at all. So it's best to file early rather than, you know, try to push it to the end of the deadline.
So if a purchase-money security interest in fixtures is perfected, it will give the secured party priority even over prior encumbrances in the real estate records. So it gets to jump to the head of the line for priority with respect to the fixtures that the secured party enabled the debtor to acquire.
I want to end by talking a bit about amendments to fixture filings that are filed in the real estate records. This is a little bit different in trying to amend certain information. I mean, some things you can amend very easily, like a debtor name or a secured party name. You just simply file an amendment, nothing too much to it.
But there's some information on a fixture filing, like the name of the record owner, the description of the real estate, and so forth that it's not something that the UCC3 amendment form was designed to allow amendments. There's no box to check to say, "Amend legal description." You can amend the collateral, or you can amend the party information.
So I want to talk about that a little bit. First of all, just generally about amendments. Amendments also have to ensure that they provide the information required by 9-502(b), and this is so that they can be indexed and be found along with the initial financing statement. In fact, there are many counties around the country that cannot link an amendment to the initial financing statement so they require a debtor name on all of them, all amendments, so that it'll show up separately on a search by debtor name. Again, it goes to trying to fit notice filings into a chain of title system that wasn't designed for that purpose.
So it does require the real estate information for the most part. And this information is provided almost exclusively for the filing offices' use so that they can properly index the record. It is not there so much to provide helpful information for searchers.
When it comes to amending the real estate information, I'm talking specifically about the legal description or the record owner information. Because the form isn't designed to allow it, the filer has to get creative and kind of try to work around it.
One option is to file an amendment that has no boxes checked, like in the collateral field, it'll say something like, "Amendment Other," and no box is checked to say that it's a party amendment or that it's a collateral amendment. It just says "Amendment Other," and then incorporates by reference, say, an attached schedule or exhibit.
Now, on the schedule or exhibit, the filer can, in great detail, explain to the filing office what they want amended and how, and the filing office then can make that change based upon the instruction on the attached schedule or exhibit. Many counties, I should say, will do that and understand that method of amendment.
But there are some counties that will not allow a record to be filed unless it does check a box to indicate what kind of amendment it is. And in that case, it's going to be necessary, in order to get things into the record, to file an amendment and check "Collateral Change" and "Add collateral" boxes.
Adding collateral never does any damage to the existing collateral. Do not restate collateral under these circumstances because that could. But adding collateral generally isn't going to do any harm. And then, in the collateral statement here, you can say something like, "See attached," and then incorporate the attached schedule or exhibit by reference. And on the attached schedule or exhibit, again, give a detailed description of what the amendment is designed to do, what information is changing, and what the new information is.
When it comes to amending a record of mortgage, a record of mortgage, remember, is a real estate document. The only amendment really addressed in Article 9 is the assignment of mortgage. And all Article 9 says is that if you're assigning the security interest in fixtures, the assignment must be made in a manner provided for in the real estate records, in other words, the law other than Article 9. It's the real estate law that governs assignments of records of mortgage. So an assignment of a security interest in fixtures that's perfected by the recording of a record of mortgage can only be done in the manner provided in the real estate law of the state.
A continuation statement, not required for a record of mortgage, and I don't think that most jurisdictions would even accept it. They're effective by their own terms. They don't require continuations.
And as far as other amendments go, Article 9 is silent. It can pretty much be assumed that other types of amendments to a record a mortgage would be done under real estate law, not under the UCC.