Opinion
Case No. 06-41128.
January 3, 2007
OPINION DENYING GMAC'S MOTION FOR LIFT OF STAY
GMAC's motion to lift stay was heard by this court on December 5, 2006. At that hearing, the Trustee appeared and argued that GMAC had failed to perfect a security interest in the vehicle. The Trustee further argued that, since GMAC is an unsecured creditor, the vehicle is property of the estate to be sold for the benefit of creditors, and that GMAC was not entited to relief from the automatic stay. GMAC argued that it has a valid perfected security interest in the vehicle because GMAC filed the appropriate documents and paid the required fees. Accordingly, GMAC argued that it should not be penalized for the Secretary of State's mistake when it failed to reflect GMAC's security interest when issuing the title.
This Court finds that GMAC knew, or should have known, of the Secretary of State's failure to note GMAC's security interest on the title. The Secretary of State sent GMAC a "Receipt for RD-108 Dealer Transaction" (the Application for Title is made on a form known as the RD-108 form) which stated that there was no secured party noted on the title. Once the Secretary of State issued the receipt showing no secured interest in the vehicle, GMAC knew, or should have known, it needed to take further steps to perfect its interest. Furthermore, after Debtor filed his bankruptcy, GMAC was given notice through various pleadings that GMAC's interest had not been perfected. Therefore, on the specific facts of this case, this Court finds that GMAC does not have a valid lien on the vehicle. Instead, the vehicle is property of the estate to be administered by the Trustee.
FACTUAL BACKGROUND
On or about October 7, 2003, the Debtors entered into a retail installment sale contract with John Bowman Chevrolet to purchase a 2003 Chevrolet Impala. On February 1, 2006, the Debtors filed a chapter 7 bankruptcy. On June 26, 2006, the Debtors and GMAC entered into a reaffirmation agreement regarding the vehicle. On July 27, 2006, the Debtors rescinded their reaffirmation agreement with GMAC regarding the vehicle.
On August 3, 2006, the Trustee filed a Notice of Assets. On October 2, 2006, the Trustee filed his Motion for Authority to Compromise Trustee's Claims Against the Debtors. In that Motion, the Trustee states that "there was no secured interest in the vehicle, causing the Debtors to have significant nonexempt equity in the vehicle." ¶ 7. In order for the Debtors to compensate the Trustee for the non-exempt equity in the vehicle, the Trustee and the Debtors agreed that the Debtors would pay the Trustee $3,000. The Motion was noticed to the entire matrix, including the GMAC Payment Processing Center in Baltimore, Maryland. An order approving the settlement was entered on October 26, 2006.
On November 10, 2006, GMAC filed a motion to lift the stay with respect to the vehicle. GMAC's motion alleged that GMAC has a perfected security interest in the vehicle, even though the title failed to reflect GMAC's secured interest, because GMAC filed an application for registration for the subject vehicle and paid the required fees.
At the hearing on the lift of stay motion, the attorney for the Chapter 7 Trustee objected to GMAC's motion to lift the stay, alleging that GMAC had failed to perfect its security interest in the vehicle and, therefore, had no security interest in the vehicle.
ANALYSIS
In order to perfect a security interest in a vehicle, a creditor must comply with §§ 257.217 and 257.238 of the Michigan Code. Mich. Comp. Laws § 257.217 (West Supp. 2004) (Vehicle registration; application; contents) provides in part:
Michigan's version of the Uniform Commercial Code expressly states that the filing of a financing statement is ineffective to perfect a security interest in a motor vehicle. See M.C.L. § 440.9302(3). Section 440.9302(4) states that "compliance with . . . §§ 257.217 and 257.238 of the Michigan Compiled Laws . . . is equivalent to the filing of a financing statement under this article and a security interest in property subject to the statute or treaty can be perfected only by compliance therewith . . ." (emphasis added).
(1) An owner of a vehicle that is subject to registration under this act shall apply to the secretary of state, upon an appropriate form furnished by the secretary of state, for the registration of the vehicle and issuance of a certificate of title for the vehicle . . . An application for certificate of title shall bear the signature of the owner. . . .
. . .
(c) A statement of the applicant's title and the names and addresses of the holders of security interests in the vehicle and in an accessory to the vehicle, in the order of their priority.
Mich. Comp. Laws § 257.238 (Security interests in vehicle; certificate of title) states:
(a) Certificate of title. When an owner named in a certificate of title creates a security interest in the vehicle described in such certificate or in any accessory thereon:
(1) The owner shall immediately execute an application in the form prescribed by the department to name the holder of the security interest on the certificate of title, showing the name and address of such holder and deliver the certificate of title, application and the required fee together with a copy of such application which need not be signed, to the holder of the security interest.
(2) The holder of the security interest shall cause the certificate of title, application and fee and the copy of such application to be mailed or delivered to the department.
(3) The department shall indicate on the copy of such application the date and place of filing of the application and return said copy to the person presenting the same.
(4) Upon receipt of the certificate of title, application and the required fee, the department shall issue a new certificate in the form provided by section 222 setting forth the name and address of each holder of a security interest in the vehicle or in any accessory thereon for which a termination statement has not been filed and the date on which the application first stating such security interest was filed, and mail the certificate to the owner.
Thus, under Michigan's vehicle code, a creditor's lien must be included on the application for title. See In re Thomas, 231 B.R. 8 (Bankr. W.D. Mich. 1999) (bank's security interest in automobile was not perfected because bank's application for title was not filed with the secretary of state prior to debtor's filing bankruptcy petition).
Notwithstanding the requirements of Michigan's vehicle code regarding perfection by noting the security interest on the title, there is case law in support of the argument that the court should treat a creditor's lien as perfected if the secured creditor properly submitted the application for title to the secretary of state. In the case of In re Gilbert, 82 B.R. 456 (Bankr. E.D. Mich, 1988), the creditor bank's application for title was properly completed and included the creditor bank's lien, but the Secretary of State mistakenly failed to include the lien on the certificate of title. The court held that because the bank "properly applied for a certificate of title listing itself as a secured party, the failure of the Secretary of State to note the security interest on the certificate of title [was] inconsequential." Id. at 460. In reaching this result, the court looked to the language of both the Michigan U.C.C. § 440.9302(4) and Vehicle Code § 257.217. Taken together, the court found that,
the legislature has directed the courts to treat the filing of an application for a certificate of title for a motor vehicle as the `equivalent' of the filing of a financing statement. Michigan UCC § 9-403(1) states that `Presentation for filing of a financing statement and tender of the filing fee or acceptance of the statement by the filing officer constitutes filing under this article.' The UCC directs `that under § 9-403(1), the secured party does not bear the risk that the filing officer will not properly perform his duties: under that section the secured party has complied with the filing requirements when he presents his financing statement for filing and the filing fee has been tendered or the statement accepted by the filing officer.'
Id.
The present case, however, is distinguishable from Gilbert. In Gilbert, it was unclear when the creditor bank had notice that the title did not reflect its security interest. In this case, GMAC had notice of the fact that the title did not reflect its security interest when GMAC received a Receipt for RD-108 Dealer Transaction (Application for Michigan Title and Registration). GMAC had further notice that it was not listed as a secured party on the vehicle title when the Debtors rescinded their reaffirmation agreement and upon receipt of the Trustee's Motion for Authority to Compromise the Trustee's Claims Against the Debtors, in which the Trustee set forth his determination that there was no secured interest in the vehicle.
CONCLUSION
For the foregoing reasons, based on the specific facts of this case, the court finds that GMAC does not have a valid lien on the subject vehicle. Therefore, GMAC's Motion for Lift of Stay is denied.