Will a lender’s notation of its lien on a certificate of title for a vehicle always perfect the lender’s security interest?UCC, Reduce Financial Risk, Title Related Topics
We continue our guest blog series with commercial lending attorney Bennett Cohen of the law firm Cohen, Salk & Huvard, P.C. You may also want to check out his eBook: Important Revisions To Article 9′s Rules Regarding Individual Debtors.
Perfection in Titled Vehicles: Will a lender’s notation of its lien on a certificate of title for a vehicle always perfect the lender’s security interest?
Answer: No. The general rule is that perfection in titled motor vehicles is achieved by registering the lender’s lien on the certificates of title. However, a significant exception is that if the vehicles are classified as “inventory” in the hands of the borrower, perfection is achieved solely by filing a UCC against the borrower covering such inventory. Vehicles held for sale or lease (or which are leased) by a borrower who is a vehicle dealer or leasing company would be classified as “inventory” under the Code and require a UCC filing for perfection. When dealing with vehicle inventory, registering a lender’s lien on the certificates of title is ineffective to perfect a security interest in the vehicles. Without the required UCC filing on a borrower’s vehicle inventory, the security interest is unperfected with regard to all creditors, including a bankruptcy trustee.