Request By:
Mr. Thomas V. Kennedy
Ogden & Robertson
1200 One Riverfront Plaza
Louisville, Kentucky 40202-2938
Opinion
Opinion By: David L. Armstrong, Attorney General; Nathan Goldman, Assistant Attorney General
In your letter to the Attorney General you state that your client, AgriStor Credit Corporation, has unsuccessfully attempted to have a financing statement covering fixtures filed in several counties in the mortgage records. The financing statement is filed in the chattel records. However, the county clerks in these counties will not file the financing statement in the mortgage records since it does not comply with all the requirements of a mortgage pursuant to KRS Chapter 382. You ask for our opinion on this and several related questions (whether a full description of the real estate is required or merely a reference to the deed book and page number; whether one or two filing fees are required).
KRS 355.9-401(1)(b) states: "The proper place to file in order to perfect a security interest is as follows. . . (b) When the collateral is goods which at the time the security interest attaches are or are to become fixtures, then in the office where a mortgage on the real estate concerned would be filed or recorded . . ." This statute is effective until July 1, 1987, at which time the statute will read: "The proper place to file in order to perfect a security interest is as follows. . . (b) . . . when the financing statement is filed as a fixture filing (KRS 355.9-313) and the collateral is goods which are or are to become fixtures, then in the office where a mortgage on the real estate would be filed or recorded . . ." KRS 355.9-313(1)(b) (effective July 1, 1987) states: "In this section and in the provisions of Part 4 of this Article referring to fixture filing, unless the context otherwise requires . . . (b) A 'fixture filing' is the filing in the office where a mortgage on the real estate would be filed or recorded of a financing statement covering goods which are or are to become fixtures and conforming to the requirements of subsection (5) of KRS 355.9-402 . . ."
In The Uniform Commercial Code of Kentucky (Charlottesville, Va.: Michie Co., 1983), Professors Leibson and Nowka state:
"Where the collateral is classified as a fixture at the time of attachment, or a good to become a fixture, section 9-401(1)(b) requires filing in the office where a mortgage on the real estate concerned would be filed. This filing is made with the real estate records. Simply because the office where UCC financing statements are filed happens to be the same office where real estate mortgages are recorded does not mean the attorney or secured party can just hand the financing statement to the clerk and ask him to file it. We advise attorneys to inform the clerk that the financing statement perfects a security interest in fixtures when financing statements and real estate mortgages are filed in the same office. If a fixture security interest is filed in the UCC records, it should not be considered a proper filing. The purpose behind filing is to give notice of a possible security interest to other interested persons. In the fixture situation the interested person almost always is a subsequent mortgagee or purchaser who wants to know what liens encumber the real estate. He searches the real property records without ever thinking of searching the UCC records and has every right to expect that security interests in fixtures would be filed in the real estate records." § 8.3(C), p. 732
This position is supported by Attorney General Opinions and case law from other states. In Florida OAG 66-52 (3 UCC Rep. Ser. 546) it was stated that a financing statement relating to a security interest in a fixture must be recorded in the same record book as mortgages. In Minnesota OAG No. 3736-17d (3 UCC Rep. Ser. 665) it was opined that a financing statement that did not meet the statutory requirements of a mortgage must still be recorded in the real estate records. In Iowa OAG S/67/1/1 (4 UCC Rep. Ser. 125) it was stated that it would be proper to note the filing of a financing statement in the real estate mortgage index. In In re Plummer, 6 UCC Rep. Ser. 555 (U.S. Dist. Ct., ED Mich., 1969), the court held that failure to file a financing statement with the real estate records caused the security interest to be unperfected.
In In re Shepherd, 14 UCC Rep. Ser. 249, 252 (U.S. Dist. Ct., WD Va., 1974) the court stated:
"The reason why a sufficient description is required on a financing statement is because property which is to become a fixture upon real estate places a burden upon lending institutions and their attorneys, as well as purchasers of said real estate, who examine the title to determine what liens and security devices may be asserted against the title and become a prior encumbrance to such a loan as may be contemplated. A title examiner is entitled in this jurisdiction, according to the cases heretofore decided prior to the Uniform Commercial Code, to rely upon the record available in the Clerk's Office to determine what encumbrances, if any, exist against the real estate. "
See, also, In re Trestle Valley Recreation Area, Inc., 40 UCC Rep. Ser. 291 (U.S. Dist. Ct., North Dakota, 1984); Oklahoma OAG 70-278 (8 UCC Rep. Ser. 1150);
Corning Bank v. Bank of Rector, 265 Ark. 68, 576 S.W.2d 949 (1979).
In our opinion, a financing statement that complies with KRS 355.9-402 and covers fixtures should be filed, at the instance of the requesting party, with the real estate records. This is not contrary to our previous opinions (OAG 81-144 and 68-407). In those opinions we stated that a financing statement could not, in and of itself, serve as a real estate mortgage unless it complied with KRS Chapter 382. In this opinion, we are stating that a financing statement that does not comply with KRS Chapter 382 may still be filed with the real estate records, not as a mortgage, but rather "to put subsequent creditors on notice. "
Riley v. Miller, Ky. App., 549 S.W.2d 314, 315 (1977).
You also ask what type of description is needed. KRS 355.9-402(1) states, in applicable part: "When the financing statement covers . . . goods which are or are to become fixtures, the statement must also contain a description of the real estate concerned." (See, also, KRS 355.9-402(5), effective July 1, 1987.) You ask whether the description must be by metes and bounds or merely by reference to deed book and page number. n
Bank of Danville v. Farmers National Bank, Ky., 602 S.W.2d 160, 162 (1980) the court held: "The description contemplated by the statutes is not required to be by metes and bounds. It does not have to be meticulous. It is only required to be in such words and terms that it can be readily located." In our opinion, a description by reference to deed book and page number is sufficient.
Finally, you ask whether, if the financing statement is filed as a fixture filing in the real estate records and as a security interest in personal property in the chattel records, two filing fees should be paid or only one. In our opinion, two separate filings are being made. Therefore, two fees should be paid.