Request By:
Mr. Don R. Smith
Division Manager
CIT Financial Services
4140 Shelbyville Road
P.O. Box 6241
Louisville, Kentucky 40206
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
Your company frequently purchases mobile home transactions wherein Kentucky residents have contracted to buy a mobile home from a dealer; and the mobile home is to be affixed to real estate in Kentucky. In those circumstances, you attempt to perfect a fixture filing and are experiencing difficulty in effecting such a filing in many county clerks' offices in Kentucky. We assume that you refer to the security agreement entered into between your company as the final lender and the purchaser as the borrower. You have indicated that you are referring to modular homes, involving two units, which are bolted together to form a home, and which home is placed on and attached to a foundation on the ground. However, you say that such homes may be removed rather easily and put back on wheels and removed from the site.
You apparently request that they file the security document in the deed book system. The clerks suggest that you either file it as a real estate mortgage or chattel mortgage.
We must say at the outset that we are not organized to be able to conclude whether or not such homes are personalty or fixtures. For one thing, we have no way of adequately evaluating the critical facts and intentions of the parties relating to the application of the court rule as to what constitutes a permanent fixture. Thus whether or not your situation involves personalty or permanent fixtures is a matter for your lawyers to help you with, or a matter ultimately for the courts. That is a very complex subject for lawyers and the courts, even in applying the court rule as to what constitutes a permanent fixture against particular facts in each case.
In
Tarter v. Turpin, Ky., 291 S.W.2d 547 (1956), the court observed that a permanent fixture is properly fixed to the realty so that it becomes a part or parcel of the realty, giving the owner of the realty the same rights to it as the soil itself. Elsewhere in that opinion the court wrote this, about the criteria for determining whether an article is a permanent fixture, at page 548:
"In
Doll v. Guthrie, 233 Ky. 77, 24 S.W.2d 947, the general rule is laid down that in determining whether an article is a permanent fixture three tests are applied: First, annexation to realty, either actual or constructive; second, adaptation or application to the use or purpose that the part of the realty to which it is connected is appropriated; and, third, the intention of the parties to make the article a permanent accession to the freehold with title to the article in the one owning the freehold. This court has further said, and it is the general rule, that the controlling factor is the intention of the parties.
American Rolling Mill Co. v. Carol Mining Co., 282 Ky. 64, 137 S.W.2d 725."
See Terry & wright of
Kentucky v. Crick, Ky., 418 S.W.2d 217 (1967), where a man moved his house from a separate tract condemned by the Department of Highways onto the land of his daughter. The court said his house became a part of his daughter's realty. See 35 Am.Jur.2d, Fixtures, §§ 4, 5, 12, and 14. Also see 36A C.J.S., §§ 1, 2, 3, and 4.
KRS 132.750, as amended in 1982, involves two different amendments in the same bill. (Ch. 395, Sections 6 and 25). Here are the two versions:
"If the wheels or mobile parts have been removed from a mobile home or recreational vehicle and the unit rests on a permanent, fixed foundation, it shall be classified as real estate. (Enact. Acts 1962, ch. 262, § 5; 1982, ch. 395, § 6, effective July 15, 1982.)
"* Legislative Research Commission Note. This section was amended in 1982 Acts Chapter 395, Sections 6 and 25. The amendments are in conflict and cannot be codified together. Therefore, both versions of this section have been printed.
"Mobile homes shall be classified as real estate for the purpose of the levy and assessment of taxes, regardless of whether the wheels or mobile parts have been removed and the unit rests on a permanent, fixed foundation. (Enact. Acts 1962, ch. 262, § 5; 1982, ch. 395, § 25, effective July 15, 1982.)"
Under KRS 132.720(3), a "permanent, fixed foundation" means a foundation permanent in nature which is so constructed as to be fixed upon the surface of the land.
Thus, regardless of which section above controls, a mobile home is classified as real estate under the statute only for the purpose of the levy and assessment of taxes.
Let us assume, for the purpose of considering the proper type of security instrument to be filed, that the courts would hold that your situation involves a permanent fixture. Under such assumption, when such collateral becomes or are to become fixtures at the time the security interest attaches, the security agreement would have to take the form and substance of a real estate mortgage, (see KRS 355.9-401(1)(b) and KRS 382.335), including granting clause, description of land, acknowledgment, certificate of authorship, etc. See also KRS 382.270 and 382.330. A mere financing statement which does not contain all of the elements of a valid real estate mortgage cannot be treated as a real estate mortgage. Also note that pursuant to KRS 355.9-313(1), the law of Kentucky other than KRS Chapter 355 determines whether and when goods, such as a mobile home, become a fixture. If a permanent fixture is involved, then the security agreement (real estate mortgage) may be filed as a financing statement, provided that the requirements of KRS 355.9-402 are met.
A deed of real estate can contain a lien. Such deed must contain the usual elements of a deed, such as the grantor and grantee, consideration, operative words of conveyance, habendum clause, description of property, signatures, acknowledgment, etc. See KRS 382.030, 382.070, 382.080, 382.110, and 382.130. However, the deed device does not fit your situation. You have said that the buyers of these modular homes already have deeds to their lands upon which the homes will be located.
If these modular homes are considered to be personal property, then a filing of a financing statement under KRS 355.9-401, 355.9-402, and 355.9-403 seems appropriate. See KRS 355.9-105(1)(f). KRS 355.9-402(1) provides in part that the chattel mortgage or other instrument referred to in KRS Chapter 186 shall be deemed to mean financing statements and shall be filed in accordance with the provisions of KRS Chapter 355. However, that statute is referring to KRS 186.045(2), relating to motor vehicles licensed in Kentucky. See
Vanover v. Bank of Alexandria, Ky.App., 644 S.W.2d 948 (1983), holding that KRS 186.045(2) does not embrace mobile homes. See also KRS 186.650, excluding house-trailers being used in one location as a permanent dwelling. The court noted that "The mobile home in this case clearly falls within that exclusion as it had a permanent location, was connected to water and sewage, had a driveway and porch and was obviously intended as a permanent home and not a vehicle or temporary dwelling. " Further, if the modular homes are considered to be personal property, and the chattel mortgage device is desired as the security agreement, the requisites of a chattel mortgage must be observed; and such chattel mortgage, if it is to be filed as a financing statement, must be filed in compliance with the pertinent statutes of the Uniform Commercial Code. See KRS 355.9-102(2), 355.9-401, 355.9-402, and 355.9-403. See also KRS 355.9-102(3). The court, in
Lincoln Bank & Trust Company v. Queenan, Ky., 344 S.W.2d 383 (1961) 385, wrote that the Uniform Commercial Code is plenary and exclusive except where the legislature has clearly indicated otherwise.
The filing of a financing statement or the filing of a chattel mortgage as a financing statement is a matter of public notice, rather than a contract recording system. See Anderson, Secured Transactions, Vol. 4, § 9-402:5. Thus a chattel mortgage may be filed as a financing statement, provided that both parties sign it and meets other requirements of KRS 355.9-402(1). The chattel mortgage would describe in detail the contract between the mortgagor and mortgagee. However, the notice, if it meets the Code requirements.