Judge Karlin

13-40426 Hoffman (Doc. # 33) - Document Text

SIGNED this 1st day of October, 2013.



In re: Case No. 13-40426
Vickie Paulette Hoffman, Chapter 7


Nunc Pro Tunc
Memorandum Opinion and Order Granting Creditor Vanderbilt
Mortgage’s Motion for Stay Relief and DenyingTrustee’s Motion to
Extend Stay1

The issue presented is whether a manufactured home financier must
always file a notice of security interest (“NOSI”) to perfect its security interest
in a newly financed home, or whether the issuance of a Certificate of Title
that correctly notes the creditor’s lien on that title, without more, perfects the
creditor’s security interest.

1 This opinion was issued yesterday with an incorrect pleading title. This correctedtitle is the only change in the opinion.

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This matter is presented in an unusual procedural posture. Creditor
Vanderbilt Mortgage and Finance (“Vanderbilt”) moved for relief from the
automatic stay, pursuant to 11 U.S.C. § 362(d), so it could foreclose on a 2009
Clayton manufactured home (“home”) owned by the Debtor.2 The Trustee,
Darcy D. Williamson, opposed that motion, claiming Vanderbilt’s security
interest was not perfected. She then filed her own motion to extend the
automatic stay on the home until the close of the case pursuant to 11 U.S.C. §
362(h)(2)—lest her opportunity to challenge Vanderbilt’s perfection be lost 30
after the conclusion of the § 341 meeting of creditors. She argues that because
Vanderbilt failed to properly perfect its interest in the home, and its lien can
thus be avoided, the property has consequential value to the estate.3 Because
I find that Vanderbilt has a perfected security interest, I deny the Trustee’s
motion to extend the stay and grant Vanderbilt’s motion for stay relief.

I. Findings of Fact
The parties have stipulated to the facts necessary to resolve the legal
issue.4 On May 29, 2009, Debtor purchased a new manufactured home from

2 Doc. 8.

3 Doc. 12.

4 Doc. 23. The Stipulation notes that it is “a complete stipulation of fact necessaryfor the briefing of the legal matter before this court.” Accordingly, although Vanderbilttitles its brief a Motion for Summary Judgment and Memorandum in Support, thatpleading does not follow the strictures of Fed. Rule Civ. P. 59 or D. Kan. LBR 7056 (and


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Clayton Homes Topeka. She executed a Retail Installment Contract-Security
Agreement (“Note”) in the principal sum of $37,335.78. That document
granted a security interest in the home to Clayton Homes Topeka. On the
same day, Clayton assigned the Note to Vanderbilt.

Vanderbilt never filed a NOSI with the Kansas Department of Revenue,
but on June 11, 2009, within the thirty days contemplated by the Kansas
certificate of title statute governing manufactured homes, Debtor applied for
a title and certified on the Title and Registration form that Vanderbilt was
the first and only lien holder. On July 15, 2009, the Kansas Department of
Revenue issued an electronic title for the Clayton home, showing Vanderbilt
with the only lien.

Several years later, Debtor filed a Voluntary Chapter 7 Petition. Debtor
indicated in her Statement of Intention that she intends to surrender the
home. Debtor is in default on the Note, and, if the lien is valid, there is no
equity in the property for the benefit of the estate.

II. Conclusions of Law
As the parties have stipulated,5 this matter constitutes a core

need not, because the parties have stipulated there are no disputed genuine issues ofmaterial fact). Thus, the Court does not construe that pleading as a summary judgmentmotion but, instead, as a post-trial brief after conclusion of evidence presentation.

5 Doc. 23 ¶ 2.


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proceeding over which the Court has the jurisdiction and authority to enter a
final order.6

Vanderbilt claims it is a perfected secured creditor and is entitled to
immediate relief from the automatic stay under 11 U.S.C. § 362(d), because
Debtor is in default, intends to surrender the property, and there is no equity
in the home for the estate. The Trustee argues in response that Vanderbilt’s
interest is not perfected, because although its lien was noted on the certificate
of title, it never filed a NOSI. As a result, the Trustee seeks to use her strong-
arm power to avoid the lien.7 The issue before the Court, then, is whether
Vanderbilt’s security interest in the home was properly perfected under
Kansas law when Debtor filed bankruptcy, notwithstanding the lack of a
NOSI. State law governs whether a property interest has been perfected.8

Under 11 U.S.C. § 362(g), the party requesting relief from the
automatic stay under § 362(d) has the burden of proof on the issue of the

6 See 28 U.S.C. § 157(b)(2)(G) (stating that “motions to terminate, annul, or modifythe automatic stay” are core proceedings); § 157(b)(1) (granting authority to bankruptcyjudges to hear core proceedings).

7 Morris v. Hicks (In re Hicks), 491 F.3d 1136, 1140 (10th Cir. 2007) (internal
citations omitted) (noting “[t]he so-called ‘strong arm’ powers of 11 U.S.C. § 544(a)(1) grantthe trustee the status of a hypothetical lien creditor once the bankruptcy petition has beenfiled. . . . Kansas law subordinates an unperfected security interest to the rights of a personwho became a lien creditor prior to perfection. Thus, if [the lienholder's] security interestwas unperfected under state law at the time the debtors filed for bankruptcy, the trusteemay exercise [] power to avoid [the] lien”).

8 Johnson v. Smith (In re Johnson), 501 F.3d 1163, 1175 (10th Cir. 2007).

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debtor’s equity in property, and the party opposing such relief has the burden

of proof on all other issues. “First, however, the moving party has the burden

of production and must establish a prima facie case for the sought relief.”9

The parties agree that K.S.A. § 58-4204(a) categorizes manufactured

homes as personal property subject to the certificate of title statute.10 Under

Kansas law, a party claiming a security interest in property subject to a

certificate of title statute11 perfects its interest by complying with the

certificate of title statute;12 filing a financing statement is expressly

9 First Nat’l Bank of Barnesville v. Alba (In re Alba), 429 B.R. 353, 356 (Bankr. N.D.
Ga. 2008) (collecting cases) (internal citations omitted).

10 See K.S.A. § 58-4204 (the Kansas certificate of title statute applicable tomanufactured homes).

11 Kansas law addressing perfection of security interests in property subject tocertificate of title statutes, K.S.A. § 84-9-311, addressees perfection for both vehicles andmobile homes. K.S.A. § 58-4204, the certificate of title statute for mobile homes, is closelyanalogous to K.S.A. § 8-135(c), the certificate of title statute for vehicles. As explained in In
re Trible,

the legislative history of the relevant statutes demonstratesthat . . . the statutory authority or source for titling andperfecting a security interest in a mobile home has been movedfrom Chapter 8, dealing with vehicles, to Chapter 58, dealingwith manufactured housing. The method of perfection,
however, remains the same.

Morris v. Trible (In re Trible), 290 B.R. 838, 843 (Bankr. D. Kan. 2003). Because the statuesare so analogous in both structure and function, and because the case law on perfection ofsecurity interests in vehicles in Kansas is more extensive than that addressing perfection ofa security interest in mobile homes, I rely in this opinion on the case law addressingperfection for vehicles in Kansas.

12 K.S.A. § 84-9-311(b) (stating that if the pertinent goods are “covered by acertificate of title, a security interest in property subject to a statute . . . described in [K.S.A.
§ 84-9-311(a)] may be perfected only by compliance with those requirements . . . .”).


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ineffective to perfect a security interest in such collateral.13

K.S.A. § 84-9-311 provides two methods to perfect a security interest in
property subject to certificate of title statutes: notation of the security interest

on certificate of title or filing a NOSI with the Kansas Department of

Revenue.14 K.S.A. § 84-9-311(b) provides the authority for perfection of a

security interest by notation on the certificate of title:

Compliance with the requirements of a statute, regulation, ortreaty described in subsection (a) for obtaining priority over therights of a lien creditor is equivalent to the filing of a financingstatement under this article. . . . [A] security interest in propertysubject to a statute, regulation, or treaty described in subsection

(a) may be perfected only by compliance with those requirements,
and a security interest so perfected remains perfectednotwithstanding a change in the use or transfer of possession ofthe collateral.
Subsection a of K.S.A. § 84-9-311 describes any certificate of title law of this

state “covering automobiles, trailers, mobile homes, boats or the like, which

provides for a security interest to be indicated on a certificate of title.”15

13 K.S.A. § 84-9-311(a)(2); Morris v. Home Pride Fin. Corp. (In re Villa), Case No. 0513309,
2007 WL 397373, at *3 (Bankr. D. Kan. Jan. 31, 2007).

14 In re Hicks, 491 F.3d at 1140 (discussing both perfection by notation on certificateof title and perfection by filing a NOSI). See Beneficial Fin. Co. of Kan. v. Schroeder, 12
Kan. App. 2d 150, 151 (Kan. Ct. App. 1987) (noting that “[p]ursuant to K.S.A. 1986 Supp.
84-9-302(3), a security interest in a vehicle may be perfected by noting its existence on thevehicle’s certificate of title, or by mailing or delivering notice of the security interest to theDivision of Motor Vehicles”). K.S.A. § 84-9-302 is the predecessor to K.S.A. § 84-9-311, andthe method of perfecting a mobile home has not changed significantly since the Schroeder
decision. See In re Trible, 290 B.R. at 843.

15 K.S.A. § 84-9-311(a)(2).


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Thus, under K.S.A. § 84-9-311(b), for a mobile home— like the home at issue

here—compliance with the requirements of the mobile home certificate of title

statute, K.S.A. § 58-4204, perfects a creditor’s interest.

In relevant part, K.S.A. § 58-4204(c) and (d) explain how the process


(c) Upon the transfer or sale of any manufactured homeor mobile home by any person or dealer, the new ownerthereof, within 30 days . . . from the date of suchtransfer or sale, shall make application to the divisionfor the issuance of a certificate of title evidencing thenew owner’s ownership of such manufactured home ormobile home. An application for certificate of title shall. . . state all liens or encumbrances thereon and such
other information as the director may require. . . . Thecounty treasurer shall use reasonable diligence inascertaining whether the facts stated in such
application are true, and if satisfied that the applicantis the lawful owner of the manufactured home or mobile
home, or otherwise entitled to have the certificate of
title therefor issued in such applicant’s name, shall sonotify the division, who shall issue an appropriatecertificate of title.
(d). . . The certificate of title shall contain a statementof any liens or encumbrances which the applicationdiscloses.16
When K.S.A. § 84-9-311(b) and K.S.A. § 58-4204(c)–(d) are read together, the

result is that a security interest is perfected when a new owner of a mobile

home applies for a certificate of title, properly discloses any lien on the home

16 K.S.A. § 58-4204(c)–(d).


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title, and the certificate is issued that correctly states the lien.17

But what happens if a buyer either fails to timely apply for the

certificate of title or files bankruptcy before the lender’s lien can be noted on

the title? Under the facts of this case, for example, the lien was not noted on

any title for 47 days. The statutory scheme deals with this issue by, under

K.S.A. § 84-9-311(a)(2), allowing a lender to protect itself by filing a NOSI
with the Kansas Department of Revenue. That statute provides:

a security interest in property subject to . . . any law ofthis state covering automobiles, trailers, mobile homes,
boats or the like, which provides for a security interestto be indicated on a certificate of title. . . shall be
deemed perfected upon the mailing or delivery of thenotice of security interest and tender of the required feeto the appropriate state agency as prescribed bysubsection (c)(5) of K.S.A. 8-135 and subsection (g) of58-4204, and amendments thereto, or the delivery ofthe documents appropriate under any such law to theappropriate state agency and tender of the required feeto the state agency, as prescribed in subsection (c)(6) of

K.S.A. 8-135 and subsection (I) of 58-4204, andamendments thereto.
As a result, when K.S.A. § 84-9-311(a)(2) is read with K.S.A. § 58-4204(g), the

a lender who elected to file a NOSI is protected if its buyer fails to timely

apply for a title, or if the debtor enters bankruptcy during any “gap” period

between the time the buyer applies for the certificate of title and when the

17 In re Hicks, 491 F.3d at 1140.


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title with the lien noted is actually issued—a time when the security interest
could otherwise be vulnerable.18 And while filing such a NOSI seems like a
good practice by a lender, it is not required for perfection. Even the pertinent
statute dealing with filing of such NOSIs indicates such filings are
discretionary by stating “the dealer or secured party may complete” a NOSI.19

Luckily for Vanderbilt, its decision not to file a NOSI did not harm its
position, because Debtor did not file bankruptcy until well after the lien had
been duly noted on the certificate of title. Accordingly, the Trustee’s reliance
on K.S.A. § 58-4204(g) is misplaced. While Vanderbilt could have filed a
NOSI, its failure to do so did not eliminate the alternative method of
perfection used here—notation of its lien on the title.

Further, the other three subsections referenced in K.S.A. § 84-9311(
a)(2), upon which the Trustee relies, are simply inapplicable to our
stipulated facts. K.S.A. §§ 8-135(c)(5) and (6) are not applicable because they
deal with vehicle registration requirements, which are not applicable to

18 See K.S.A. § 84-9-311, cmt. 5 (noting that this gap might otherwise “result inturning some objectionable transactions into avoidable preferences under Bankruptcy CodeSection 547"); Mid Amer. Credit Union v. Bd. of County Comm’rs, 15 Kan. App. 2d 216, 223(Kan. Ct. App. 1991) (stating that the Kansas legislature created the NOSI procedure “tocover the period between the sale and the purchaser’s obtaining a certificate of title”); Lentz

v. Bank of Independence (Matter of Kerr), 598 F.2d 1206, 1208 (10th Cir. 1975) (same).
K.S.A. § 58-4204(g).

Case 13-40426 Doc# 33 Filed 10/01/13 Page 9 of 11

manufactured housing in Kansas.20 And subsection (I) of K.S.A. § 58-4204 is
not applicable here because it deals with the acquisition of a security
agreement on a manufactured or mobile home “subsequent to the issuance of
the original title” on such home. There is no evidence in this stipulated record
that the title issued to this debtor was anything other than an original title.
As a result, while the parties here elected to focus their arguments on the
language in K.S.A. § 84-9-311(a)(2), that subsection is not the exclusive place
to look for the answer under our facts.

The parties agree that Debtor applied for a certificate of title, that the
application properly disclosed Vanderbilt’s lien on the home, that the new
title correctly stated the lien, and that this all occurred over two years before
Debtor filed her bankruptcy petition. Under K.S.A. § 84-9-311(b) and K.S.A. §
58-4204(c)–(d), these steps properly perfected Vanderbilt’s security interest as
of the date the title was issued,21 on July 15, 2009.22 Because Vanderbilt’s
security interest in the home was perfected several years before the debtor

20 K.S.A. § 58-4203(a).

21 Redmond v. MHC Fin. Serv. (In re Barker), 358 B.R. 399, 411–12 (Bankr. D. Kan.
2007) (holding that “Kansas law provides that perfection of a purchase money lien in amotor vehicle, absent the filing of an NOSI, occurs when the electronic title and notation ofthe lender’s lien thereon issues”); Morris v. Intrust Bank (In re Anderson), 351 B.R. 752,
756–58 (Bankr. D. Kan. 2006) (same).

22 Doc. 23 ¶ 8.


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filed her bankruptcy petition, Vanderbilt’s decision not to also file a NOSI is
simply irrelevant.23

Because the issuance of the title with the lien notation properly
perfected Vanderbilt’s security interest, the Court grants Vanderbilt’s motion
for relief from the automatic stay24 and denies Trustee’s motion to extend the

It is so ordered.

# # #

23 See, e.g., In re Hicks, 491 F.3d at 1140; In re Barker, 358 B.R. at 407 (collectingcases); Mid Am. Credit Union, 15 Kan. App.2d at 223 (stating NOSI procedure created “tocover the period between the sale and the purchaser’s obtaining a certificate of title”). TheCourt notes that In re Villa, upon which the Trustee heavily relies, is inapplicable. In thatcase, “[a] certificate of title ha[d] never been issued listing Debtor as the owner of themobile home,” and thus no title listing the lien was ever issued. As a result, that case hasno bearing when perfection is effectuated through notation of a lien on a certificate of title.
2007 WL 397373, at *1.

24 Doc. 8.

25 Doc. 12.


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