Alternative to a Mechanic’s Lien – UCC Filing
In this article, I want to discuss ways to perfect your security interests in fixtures and how these UCC filings help you gain priority over other potential claimants (such as banks or other lien holders).
“Fixture” means goods that have become so related to particular real property that an interest in them arises under the real property law of the state in which the real property is situated. In other words, fixtures are generally physically attached to the building. There are numerous examples of this on a construction project – carpet, tile, countertops, and bathtubs.
A party with a security interest in goods which are considered a fixture must perfect by making a “fixture filing.” Such is accomplished by filing a financing statement in the county where a mortgage on the real property would be recorded. In addition to the usual requirements for a financing statement, a fixture filing financing statement must contain the legal description of the real property to which the fixture is attached.
Determining priority in relation to these types of filings can be extremely tricky. However, the general rule is that in a contest between a holder of a security interest in a fixture (i.e. you, for example) and a holder of an interest in the real property to which the fixture is attached (i.e. the mortgagor, for example), the first party to file a fixture filing or record its real property interest prevails (which would almost always be the mortgagor).
However, a contractor can prevail over a mortgagor or someone with a prior interest, in the following situations:
- The security interest is perfected in any manner authorized by the code PRIOR to affixing the good to the property. In this case, that security interest will prevail over a real property interest if (1) the collateral is a readily removable office or factory machine; (2) the collateral is readily removable equipment that is not primarily used or leased for use in the operation of real property; or (3) the collateral is a readily removable replacement of a domestic appliance that is a consumer good.
- A security interest in fixtures, whether or not perfected, has priority over the conflicting interest of an encumbrancer or owner if (1) the encumbrancer or owner has, in an authenticated record, consented to the security interest or disclaimed interest in the goods as fixtures or (2) the debtor has a right to remove the goods against the encumbrancer or owner. This is something that would have to be taken care of through your contracts through a security agreement.
- And, if you are not dealing with a construction mortgage but instead are dealing with a conventional mortgage or home equity line of credit (such as in remodel situations), a secured party who makes a fixture filing within 20 days after the fixture was attached to the property (i.e. you) will prevail over a real property interest in the same fixture that was recorded prior to affixation (i.e. the mortgagor).
