Opinion
Case No. 96-10133, Chapter 7, Adversary No. 97-2005
August 4, 1997
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This case is before the court on the complaint of the plaintiff, Randy L. Royal, the trustee of the estate of the debtors Tracy C. Houser and Penni Kay Houser (Housers), to avoid a lien alleged to be a preferential transfer to the defendant, LaSalle Northwest National Bank (LaSalle). The parties submitted the case on a Joint Stipulation of the facts, affidavits, and briefs. The parties agree that the issue before the court is a question of law. The court has considered the pleadings and the applicable law, and being fully advised renders its decision.
Findings of Fact
On February 23, 1996, LaSalle advanced funds to the Housers for the purchase of a 1990 Mercury Cougar. LaSalle issued a loan draft payable to the seller of the vehicle. Housers executed a promissory note and security agreement, giving LaSalle a security interest in the vehicle.
The seller gave the title to the vehicle to Mrs. Houser who, as instructed, obtained a new title from the Clerk of Natrona County showing ownership in the Housers' name. The title was issued on February 26, 1996.
Mrs. Houser forwarded the title, upon which the lien was not yet recorded, to LaSalle. Mrs. Houser states by affidavit that she forwarded the title on or about February 26, 1996. LaSalle states that it received the title on March 28, 1996 and forwarded it to the Clerk of Natrona County along with the security agreement for filing.
LaSalle's purchase money lien was recorded on the title on April 9, 1996. The lien was recorded 46 days after the granting of the security interest and the transfer of the funds pursuant to the note. The Housers filed their chapter 7 petition on May 22, 1996.
Conclusions of Law
The court has jurisdiction over this matter under 28 U.S.C. § 157(a) and 1334. This matter is a core proceeding within the definition of § 157(b)(2)(F).
This case was filed by the trustee to avoid an alleged preferential transfer under 11 U.S.C. § 547(b). LaSalle does not dispute that all of the elements of a preferential transfer are present here. Clearly, LaSalle perfected its purchase money security interest outside of the twenty-day period permitted by the statutory exception found in § 547(c)(3), and within the ninety days prior to the petition filing. The debtors' insolvency is presumed and is unrebutted. 11 U.S.C. § 547(f). The delayed perfection is an avoidable transfer. In re Hesser, 984 F.2d 345, 348 (10th Cir. 1993). However, LaSalle argues that the contemporaneous exchange exception of § 547(c)(1) is applicable here and protects the lien from avoidance.
In § 547(c)(3), the preference statute specifically excepts from avoidance the perfection of a purchase money security interest in personal property. That provision permits perfection for the twenty-day period after the debtor receives possession of the collateral. Due to the clear statutory language of the section, all Circuit Courts considering the issue have held that § 547(c)(3) is the only exception available to a purchase money security lender. See, e.g., In re Locklin, 101 F.3d 435 (5th Cir. 1996); In re Holder, 892 F.2d 29 (4th Cir. 1989); In re Tressler, 771 F.2d 791 (3rd Cir. 1985); In re Vance, 721 F.2d 259 (9th Cir. 1983). The Tenth Circuit has not ruled on this question.
No Circuit Court has held that § 547(c)(1), the contemporaneous exchange exception, is applicable to purchase money liens. Rather, the issue is addressed whether § 547(c)(1) is applicable to the perfection of any lien at all, rather than exclusive to its intended purpose, i.e., cash sale transactions and collateral substitutions. The Circuit Court decisions diverge over whether § 547(c)(1) can provide a defense to a late recording creditor of a nonpurchase money security interest. Pine Top Ins. Co. v. Bank of America Nat. Trust Sav. Ass'n, 969 F.2d 321 (7th Cir. 1992) (holding that some circumstances may permit application of the section); contra In re Arnett, 731 F.2d 358 (6th Cir. 1984).
The parties here are familiar with this court's decision in Royal v. Rocky Mountain Bank, F.S.B., case no. 93-2051 (Bankr.D.Wyo. July 27, 1994) in which this court discussed the same issues in a case with similar facts. In that case, perfection of the lien occurred outside the ten-day window provided in § 547(c)(3). The the creditor argued that the provisions of § 547(c)(1) excepted the transfer from avoidance. Given the clear weight of authority and the strict statutory reading of the Tenth Circuit in In re Hesser, this court rejected the creditor's argument.
The court sees no reason to deviate from that previous ruling. Since the Rocky Mountain Bank case, Congress has amended the Code to extend the time for perfecting to twenty days in order to more uniformly comply with state perfection statutes and the Uniform Commercial Code. But § 547(c)(3) is still the only exception available to purchase money lenders.
Regardless, there may be circumstances which support an equitable exception to the strict time limits of the Code. One factor often cited occurs when the timing of perfection is outside the creditor's control due to debtor misconduct or unacceptable delay in the recording office. However, no Circuit Court has so held in the enabling loan context.
In this case, LaSalle has not shown that the delayed perfection was outside its control. There is no evidence to support its position, other than innuendo, that the debtors were responsible for the failure to timely perfect. There is no evidence that LaSalle took any action at the time the funds were advanced, nor afterwards, to ensure its lien was filed. Rather, this appears to be a case where the creditor took no action to protect its interest.
Accordingly, the court holds that the security interest of LaSalle Northwest National Bank in the debtors' 1990 Mercury Cougar should be avoided as a preferential transfer. The court will issue a judgment in accordance with this opinion.