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Practice
Tips
The Price of a Perfect(ed) Motor Vehicle Lien
By Joyce Bradley Babin, Chapter 13 Standing
Trustee |
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A creditor financing the
purchase of a motor vehicle invariably expects the vehicle
to serve as collateral. However, in order for the creditor's
security interest to be of any value, the creditor's
lien must be perfected. If the creditor does not properly
perfect its lien, the loss can be costly. Arkansas Code
Annotated ("A.C.A.") §§ 27-14-801,
et seq., establishes methods for a creditor to
perfect a lien in a motor vehicle. The definition of
a "motor vehicle" includes vehicles driven
upon the highways, trailers, semitrailers, all-terrain
vehicles and most mobile homes.1 The perfection
methods described in the A.C.A. are exclusive.2
The filing and issuance
of a new certificate of title with the Arkansas Department
of Finance and Administration ("DFA") constitutes
constructive notice of liens and encumbrances to creditors
of the owner, subsequent purchasers and encumbrancers,
except those liens authorized by law dependent upon
possession.3 Under A.C.A. § 27-14-805,
the documents creating and evidencing the lien along
with the last-issued certificate of title must be submitted
to the DFA in order to perfect the creditor's interest.
The Arkansas legislature has provided an optional means
for perfecting a lien on a motor vehicle. Under A.C.A.
§ 27-14-806, at the lienholder's option, the lienholder
may record the lien on the manufacturer's statement
of origin or record the lien on an existing certificate
of title and file with the DFA a certified copy
of the instrument creating and evidencing the lien or
encumbrance. The cost for a direct lien filing under
this optional method is only $1.4
A creditor may want to
wait for the borrower to license and obtain a certificate
of title for a motor vehicle before the creditor submits
documents to the DFA to perfect its lien. A creditor
may simply delay submission of the documents to the
DFA. This delay is not in the creditor's best interest.
The time to perfect the lien is not "unlimited."
If the creditor intends for a lien to be perfected from
the time of the possession of the motor vehicle, usually
the date of the purchase contract, then the lien must
be filed within 30 days from that date in order for
the lien to "relate back" to that time.5
Timely perfection is particularly important if a bankruptcy
filing occurs.
A delay in perfection
may prove much more costly than the $1 required for
the direct lien filing if a bankruptcy intervenes. If
the lien is not perfected before the bankruptcy case
is filed, the motor vehicle lien claim may not constitute
a secured claim in the bankruptcy case. The bankruptcy
trustee may be able to claim a superior secured interest
in the vehicle by virtue of 11 U.S.C. § 544 which
gives the trustee the status of a lien creditor at the
time of the bankruptcy filing. As a lien creditor, the
trustee may be able to assert a superior lien over the
creditor's lien. If the lien is filed outside the "relation-back"
period, the creditor's secured lien claim may be subject
to avoidance actions by a bankruptcy trustee as a preferential
transfer6 or a fraudulent conveyance.7
By acting quickly and for the mere price of $1, however,
a creditor can perfect its lien with the DFA using the
optional direct lien filing provisions of § 27-14-806.
By knowing these options, the creditor should cruise
easily down the path to perfection and never be left
"on the side of the road." •
1 A.C.A. § 27-14-703. Mobile homes for which the
certificate of title has not been cancelled
under A.C.A. § 27-14-1603.
2 A.C.A. § 27-14-807. See, e.g., Bank of Dardanelle
v. Bibler Brothers, 244 Ark. 534,
537, 426 S.W.2d 152, 153 (1968).
3 A.C.A. § 27-14-805.
4 A.C.A.§ 27-14-806.
5 A.C.A. §§ 27-14-805 and 27-14-806. Under
the Bankruptcy Code, the
relation-back period is shorter, ten
to twenty days. However, under the Bankruptcy
Abuse Prevention and Consumer Protection Act of 2005,
to become effective on October 17,
2005, the period is expanded to thirty days and will
be consistent with A.C.A. §§
27-14-805 and 27-14-806.
6 11 U.S.C. § 547.
7 11 U.S.C. § 548. |
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