What a dirt lawyer needs to know about new Article 9 of the UCC

Priority. For goods generally, including fixtures, a buyer other than a secured party takes free of a security interest if the buyer gives value and receives delivery of the collateral without knowledge of the security interest and before the security interest is perfected.52 A buyer of goods in ordinary course of business takes free of a security interest created by the buyer's immediate seller, even if the security interest is perfected and the buyer has knowledge of it (though not if the buyer has notice that the transfer is a violation of the secured party's rights), unless the secured party has perfected by taking possession of the goods.53

filing of a fixture filing is subordinate to a conflicting interest of an encumbrancer or owner of the related real property, other than the debtor.54 For this reason, the secured party will generally perfect its interest in fixtures, or in goods that are to become fixtures, by means of filing a fixture filing, rather than (or in addition to) a financing statement.55 The exceptions are what will normally be of interest.

Purchase-Money Security Interests. A purchase-money security interest in fixtures has priority over the interest of the owner or encumbrances if the debtor has an interest of record in, or is in possession of, the real property, the interest of the owner or encumbrances arises before the goods have become fixtures, and the purchase-money security interest is perfected before the goods have become fixtures, or within twenty days thereafter.sb However, this does not apply to the debtor or a holder of the lien of a construction mortgage, to the extent the construction mortgage was recorded before the goods became fixtures and the goods became fixtures before the completion of construction.57

A non-purchase-money security interest in fixtures achieves priority over the interest of an owner or encumbrances of the real property if any of the following are true.58

1. The debtor has an interest of record in, or is in possession of, the real property, and the security interest (i) is perfected by a fixture filing before the interest of the owner or encumbrances is of record, and (ii) has priority over any conflicting interest of a predecessor in title of the encumbrances or owner;

2. The security interest is perfected before the goods become fixtures by any method permitted by Article 9, and the fixtures are certain categories of readily removable goods;

3. The conflicting interest in the real property is a lien created by legal or equitable proceedings (such as a judgment lien) after the security interest is perfected by any method permitted by Article 9;

5. the debtor has the right to remove the fixtures as against the owner or encumbrancer.59

Special rules govern security interests created in manufactured homes in manufactured home transactions.60

B. Deposit Accounts

A real estate lender may want to tie up the borrower's bank accounts, for example, because they contain the loan funds themselves, interest reserves, property tax deposits, or the money the borrower collects in the operation of the borrower's business. Deposit accounts are demand, time, savings, passbook, or similar accounts maintained with a bank, but not investment property or accounts evidenced by an instrument.61 Deposit accounts are not included within the definition of general intangibles.62 Thus, if the secured party intends to encumber deposit accounts, they must be separately described. To the extent that the secured party is relying on a previously existing security agreement or financing statement (or is just using an old form), the secured party may need to add deposit accounts to its collateral description.