Fixtures

Question 1

What are Fixtures?

Answer 1

Fixtures are goods that have become so related to real property that an interest in them arises under real property law.

• In general, personal property attached to real estate with the intent that it become a permanent part of the real estate is a fixture (for example, central air conditioning, built-in appliances, elevators, etc.).

Question 2

What Kinds of Fixtures CANNOT have a Security Interest?

Answer 2

No security interest can exist in ordinary building materials (for example, bricks, lumber, shingles, etc.) that are incorporated into an improvement on land.

Question 3

How is a Security Interest in a Fixture Perfected?

Answer 3

To perfect a security interest in fixtures, a fixture filing must be made in the office where a mortgage on the real estate would be filed. In addition to the usual requirements for a financing statement, a fixture filing financing statement must reasonably identify the real estate and must show the name of the owner

Question 4

What Rights Does the Secured Party Hold with Collateral that is a Fixture?

Answer 4

When the security interest in the fixture has priority over all interests in the real property, the holder of the security interest in the fixture may, upon default, remove the fixture from the real property.

Question 5

What Must a Secured Party Do When they Default on a Fixture that the Debtor DID NOT own?

Answer 5

If the debtor does not own the property from which the collateral is removed, the creditor must reimburse the owner of the property for the cost to repair damage to the property caused by removal, but not for any other diminution in value.

Question 6

What is the Priority Rule for Secured Party that Has an Interest in Fixtures vs. Subsequent Real Estate Interest?

Answer 6

A security interest in fixtures has priority over any real estate interest that is recorded subsequent to the perfection of the security interest by fixture filing.

Question 7

What is the Priority Rule for Secured Party that Has an Interest in Fixtures vs. Prior Real Estate Interest?

Answer 7

A prior real estate interest that is properly recorded has priority over a security interest that subsequently arises.

• Exception—PMSIs: A PMSI takes priority over an earlier in time realty interest if it’s perfected by a fixture filing before the goods become fixtures or within 20 days thereafter.
• Note — Construction Mortgages: A construction mortgage takes priority over a subsequent PMSI in fixtures, even if the security interest is perfected by a fixture filing within 20 days of affixation.

Question 8

When is Fixture Filing Unnecessary?

Answer 8

1) Readily Removable Collateral — A secured party need not fixture file as to readily removable:

• Factory or office machines
• Equipment that is not primarily used or leased for use in the operation of the real estate
• Replacements of domestic appliances which are consumer goods.

Any method of perfection before such goods become fixtures entitles the secured party to priority.

2) Consent, Disclaimer, or Right to Remove — A secured party need not perfect at all to have priority:

• If the encumbrancer or owner of the real estate has, in an authenticated record, consented to the security interest or has disclaimed an interest in the goods as fixtures
• If the debtor has a right to remove the goods as against the real estate claimant.