The Bankruptcy Appellate Panel of the Sixth Circuit recently held that in a Chapter 7 bankruptcy: (1) an assignee of a previously perfected security interest in a motor vehicle has standing to seek relief from the automatic stay; and (2) failure to change the name of the lienholder on the certificate of title does not change the perfected status of the assigned security interest.
A copy of the opinion can be found at:
Debtor purchased a car with proceeds from a dealer-financed loan and gave the dealer a security interest in the car. The dealer then transferred the note and security interest to an auto finance company ("AF"). AF noted its lien on the vehicle's certificate of title. AF later assigned the note and its security interest to a bank (Bank) pursuant to an agreement under which the Bank held and serviced the promissory note. The Bank neither recorded the assignment of the note and security interest nor noted on the certificate of title that it had acquired the security interest.
Debtor later defaulted on the car loan and the Bank repossessed the vehicle. Shortly after the repossession, Debtor filed for Chapter 7 bankruptcy protection, and the Bank moved for relief from the automatic stay. In support of its motion, the Bank submitted copies of the retail installment sale contract between Debtor and the car dealer, the vehicle's certificate of title, the agreement between AF and the Bank, and a notarized affidavit stating that AF assigned the contract to the Bank and that the Bank was entitled to seek relief from the automatic stay.
The bankruptcy court denied the Bank's motion, ruling that the Bank lacked standing to seek relief from the automatic stay due to a lack of "unity of entity," as evidenced by the fact that the Bank held the note while AF was still listed as the lienholder on the certificate of title. The Bank appealed and the Bankruptcy Appellate Panel of the Sixth Circuit ("Panel") reversed.
The Panel began its analysis by addressing the term "party in interest" to determine which parties may seek relief from the automatic stay. See 11 U.S.C. §362(d). Noting that the term is not statutorily defined, and relying on a variety of court opinions that addressed the meaning of the term, the Panel concluded that "party in interest" broadly refers to those parties legally entitled to enforce an obligation, and that an assignment of claims must be valid in order for an assignee to be considered such a "party in interest." Accordingly, the Panel ruled that an assignee of a secured interest has standing to pursue relief from the stay as long as the assignment is valid and the other elements of section 362(d) are satisfied.
Next, taking issue with the bankruptcy court's conclusion that the reasoning in Rhiel v. Wells Fargo Fin. Acceptance (In re Fields), 351 B.R. 887 (Bankr. S.D. Ohio 2006) (Fields), was inapplicable to the present case, the Panel stressed that, although the underlying dispute in Fields differed from that in the present case, its holding was nevertheless controlling. The Panel observed that, as stated in Fields, under Ohio law enforceability of a security interest in a motor vehicle requires that such interest be perfected, and that such a security interest may be perfected by noting the lien on the vehicle's certificate of title, which was done in this case.
Moreover, again relying on Fields, the Panel ruled that under Ohio law the assignment of a perfected security interest in a motor vehicle does not require "re-perfection" of that interest in order for the assignee to maintain the status of the perfected security interest. The Panel noted that the original act of perfecting the security interest would put interested third parties on notice that another creditor claimed an interest in the debtor's property and that the presence of the assignor's name on a certificate of title, rather than the assignee's, would not mislead creditors. See Fields, 351 B.R. 887 at 891-93; Ohio Rev. code §§1309.310(C), 1309.311(A)(2).
Thus, as the assignee of a previously perfected security interest, the Bank was not required to have its assignment noted on the certificate of title in order to maintain its secured status. Accordingly, the Panel concluded that, as a creditor with a properly perfected security interest in the vehicle, the Bank was a "party in interest" with standing to seek relief from the automatic stay.
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
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