Opinion ID: 223267
Heading Depth: 3
Heading Rank: 2

Heading: HRE’s security interest in the vehicles

Text: HRE next argues that the bankruptcy and district courts erred in holding that it did not have a perfected security interest in the vehicles. Texas Transportation Code § 501.111 states: (a) Except as provided by Subsection (b), a person may perfect a security interest in a motor vehicle that is the subject of a first or subsequent sale only by recording the security interest on the certificate of title as provided by this chapter. (b) A person may perfect a security interest in a motor vehicle held as inventory by a person in the business of selling motor vehicles only by complying with [UCC] Chapter 9 . . . . A person may perfect a security interest in inventory by filing a financing statement with the Secretary of State. TEX. BUS. & COM. CODE § 9.310(a); Apeco Corp. v. Bishop Mobile Homes, Inc., 506 S.W.2d 711, 717 (Tex. Civ. App.—Corpus Christi 1974, writ ref’d n.r.e.) (“In Texas, a security interest in a vehicle may be perfected in two ways. If the vehicle is part of inventory, the 6 Case: 10-20813 Document: 00511572679 Page: 7 Date Filed: 08/16/2011 No. 10-20813 security interest must be filed with the Secretary of State.”). Texas Transportation Code § 501.114(a) states: A lienholder may assign a lien recorded under Section 501.113 without making any filing or giving any notice under this chapter. The lien assigned remains valid and perfected and retains its priority . . . . HRE essentially argues it obtained a perfected security interest through assignment under § 501.114(a) and therefore did not have to file a UCC filing statement as required by § 501.111(b). Thus, HRE argues: It is undisputed that the original lienholders on the instant vehicles had perfected their security interest in the vehicles by causing their names to be notated on the titles in question which were then acquired by [HRE] which financed the vehicle purchases at auction. [HRE] was then successor and assignee of the interest of the former lienholder and was not required to re-title the vehicles with its own name on the title in order to have a perfected security interest. It cites to In re Clark Contracting Services, Inc., where the district court addressed whether Wells Fargo, the purchaser of a secured loan by a financing company for the purchase of several trucks, maintained a perfected security interest in the trucks even though the financing company failed to have the certificates of title changed to reflect Wells Fargo as the lienholder. 438 B.R. 913 (W.D. Tex. 2010). Interpreting § 501.114(a), the court held that § 501.114(a) did not require Wells Fargo to be listed on the certificate of title in order to succeed to the financing company’s perfected status. Id. at 925. HRE’s argument has no merit because it miscomprehends the nature of its purchase. Unlike In re Clark Contracting Services, HRE did not purchase the vehicle liens at auction. Instead, it financed JMW Auto’s purchase of the vehicles at auction. In doing so, it was not being assigned a previously perfected security interest, it was creating a new security interest in the vehicles. And because the vehicles were purchased by JMW Auto and held as inventory, HRE was required under § 501.111(b) to file a UCC financing statement to perfect its security 7 Case: 10-20813 Document: 00511572679 Page: 8 Date Filed: 08/16/2011 No. 10-20813 interest. It failed to do so, and therefore did not have a perfected security interest in the vehicles at issue here.