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Media Alerts - Vanderbilt Mortgage & Finance, Inc. v. Westenhoefer, Trustee -- Sixth Circuit
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August 19, 2013
  Vanderbilt Mortgage & Finance, Inc. v. Westenhoefer, Trustee -- Sixth Circuit
Headline: Kentucky statute governing perfection of liens must be read as a whole to determine whether a lender has perfected its lien. If the application for first title and title-lien statement were not filed in the debtor's county of residence, the lien is not perfected.

Area of Law: Secured Transactions; Strong-Arm Proceeding

Issue Presented: Did Vanderbilt Mortgage properly perfect its security interest in the manufactured home?

Brief Summary: The debtor bought a manufactured home, borrowing the funds from Vanderbilt Mortgage and Finance, Inc., who took a security interest in the home. Vanderbilt filed the application for first title and the title-lien statement required under Kentucky law in the county where it did business: Bell County, Kentucky. But the debtor resided in Magoffin County, Kentucky. The debtor filed for Chapter 7 bankruptcy, and the trustee brought a strong-arm proceeding seeking to avoid Vanderbilt's lien on the manufactured home. The trustee argued that the lien was not perfected under Kentucky law because Vanderbilt failed to file the title-lien statement in Magoffin County, where the debtor resided. The Sixth Circuit affirmed the decisions of the bankruptcy court and the district court for summary judgment in favor of the trustee, holding that Vanderbilt failed to perfect its lien.

Significance: The Sixth Circuit resolves a question frequently litigated by the lender, Vanderbilt Mortgage, holding that the Kentucky statute on perfecting liens must be read as a whole to determine whether a lien was perfected and that the lien can be perfected only by filing the application for first title and the title-lien statement in the county where the debtor resided.

Extended summary: The debtor purchased a manufactured home with funds borrowed from Vanderbilt Mortgage and Finance, Inc., who took a security interest in the home. Vanderbilt filed an application for first title and an application for a title-lien statement in the county in which it did business, that is, in its county of residence. After the debtor filed a voluntary Chapter 7 bankruptcy petition, the bankruptcy trustee brought a strong-arm proceeding against Vanderbilt to avoid the lien, claiming that the lien was not properly perfected under Kentucky statutes. The bankruptcy court granted the trustee's motion for summary judgment, and the district court affirmed. The Sixth Circuit affirmed.

The relevant Kentucky statute provides that the "perfection and discharge of a security interest in any property for which has been issued a Kentucky certificate of title shall be by notation on the certificate of title." The Kentucky Supreme Court had held that this notation is the sole means of perfecting title. Vanderbilt argued that such a notation was made on the certificate in this case, so its lien was perfected. But the court noted that the statute goes on to say, "The notation of the security interest on the certificate of title shall be in accordance with this chapter." Another section of that statute provides, "[T]he notation of security interests relating to property required to be titled in Kentucky through the county clerk shall be done in the office of the county clerk of the county in which the debtor resides." The Sixth Circuit found that section to be unambiguous and conclusive. Other sections described additional steps, but they all relate back to the notation by the clerk in the debtor's county of residence.

The Sixth Circuit rejected Vanderbilt's arguments that were based on statutes relating to other kinds of security interests or other factual bases (e.g., cases where the clerk failed to note the lien, or where the mobile home was permanently affixed to property). Vanderbilt also relied on another section of the code, but the court noted that that section related to applications for certificates of title or registration, not to notation of a lien on that title. The court noted that Vanderbilt had raised these same arguments unsuccessfully in several other bankruptcy and district court cases in Kentucky. The Sixth Circuit agreed with those other decisions and held that Vanderbilt did not perfect its lien, affirming summary judgment in the trustee's favor.

Link to full opinion: http://www.ca6.uscourts.gov/op...13a0150p-06.pdf


Panel: Circuit Judges Moore, Sutton, and Donald

Argument: March 8, 2013

Date of Issued Opinion: May 28, 2013

Docket Number: 11-6216

Decided: Affirmed

Case Alert Author: Kathryn Burkhart

Counsel: ARGUED: John P. Brice, WYATT, TARRANT & COMBS, Lexington, Kentucky, for Appellant. John M. Simms, ATKINSON, SIMMS & KERMODE PLLC, Lexington, Kentucky, for Appellee. ON BRIEF: John P. Brice, WYATT, TARRANT & COMBS, Lexington, Kentucky, for Appellant. John M. Simms, ATKINSON, SIMMS & KERMODE PLLC, Lexington, Kentucky, for Appellee.
Author of Opinion: Circuit Judge Donald

Case alert circuit supervisor: Professor Eileen Kavanagh

    Posted By: Mark Cooney @ 08/19/2013 09:16 AM     6th Circuit  

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