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Bank Not Required to Perfect Security Interest in Trailer Using Optional Title - Manchester v. Arvest Bank

October 25, 2012

Vincent Howard and our Rubidoux individual bankruptcy attorneys write here frequently about paperwork problems with mortgages. In many states, people subject to foreclosure have gone to court to argue that the bank's paperwork is not in order, and one argument they can make is that the interest was not properly recorded on the title, or "perfected." In Manchester v. Arvest Bank, the dispute was over whether the bank had properly recorded its security interest in a horse trailer rather than a home. Jennifer Lynn Jackson took out a loan from Arvest Bank to buy the trailer and secured the debt with the trailer; the bank issued a financing statement as Oklahoma law required, but the state also issued a title. When Jackson later filed for bankruptcy, trustee Susan Manchester sought to avoid the lien on the trailer, arguing that the interest was not properly recorded on the title, but the Oklahoma Supreme Court ruled that this isn't necessary.

When Jackson bought the trailer in 2003, Arvest issued a UCC-1 financing statement recording that the trailer was collateral for her debt to the bank. In 2008, Arvest issued a UCC continuation statement. However, the Oklahoma Tax Commission also issued a certificate of title for the trailer to Jackson, and the bank did not record its security interest on that title, nor did it take the steps to record its security interest required by Oklahoma law. Jackson later file for personal bankruptcy. Manchester, the trustee of record on her case, sought in the U.S. Bankruptcy Court for the Western District of Oklahoma to avoid Arvest's lien on the trailer, arguing that the security interest was never perfected because Arvest never recorded the security interest on the title, as required for a travel trailer or a "vehicle" under Oklahoma law. The title was also not recorded as required in those cases. The bankruptcy court ultimately certified the question to the Oklahoma Supreme Court.

The high court started by reformulating the question put to it, to read: "Does the filing of a UCC-1 financing statement for a personal/recreational use horse trailer perfect the creditor's security interest where the Oklahoma Tax Commission has issued a discretionary certificate of title, and the creditor is not named on the title?" It ultimately answered yes, meaning Manchester (and Jackson) could not avoid the lien. The high court found that Oklahoma law's definition of "vehicle" expressly excludes horse trailers. Furthermore, it said, this particular trailer is not a travel trailer just because it includes a dressing room. Thus, it is excluded from the types of vehicles for which title must be issued in Oklahoma. Rather, the court said, a security interest in a horse trailer is perfected by filing a UCC-1 statement, which was properly done in this case. To rule otherwise, the court noted, would require lenders to constantly monitor the issuance of optional titles and possibly invite fraud.

Vincent Howard and our Long Beach consumer bankruptcy lawyers appreciate what the trustee in this case was trying to do. When paperwork is not in order on any kind of secured debt--which includes vehicles with loans on them as well as mortgages and some other kinds of loans--the lender may not have the rights it thinks it has. However, to prove that the lender doesn't have a security interest, the bankruptcy filers, or their trustee, must demonstrate it in court. In the wake of the robo-signing scandal, judges are more open to theories of improper paperwork or wrongful foreclosure than they once were, but the burden of proof is generally on the filer. At Howard Law, P.C., our Chino personal bankruptcy attorneys scrutinize new cases carefully for this kind of opportunity, because avoiding a lien can drastically reduce what borrowers need to pay back.

If you feel overwhelmed by your debt and you're ready to discuss bankruptcy as a solution, Vincent Howard and the team at Howard Law, P.C., can help. For a consultation, call us toll-free at 1-800-872-5925 or send us an email today.

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