Bankruptcy in Michigan-Avoidance Powers and Chapter 13.
The issue of whether a Ch. 13 debtor has standing to exercise avoidance powers (normally) exclusive to the Standing Trustee was reviewed by a 6th Circuit Panel.
The Bankruptcy Court for the Eastern District of KY held that Debtor Gary Barbee has standing to initiate an avoidance action, and that a bank’s lien was escapable because it wasn’t on the manufactured home title, nor had the home been converted (legally) to real property. U.S. Bank National Assoc., as Trustee, appealed.
The Bankruptcy Code defines property broadly as “anything of value that the debtors have”. A security interest is “a lien created by agreement”, USCA Sec. 101(51). Property interests are governed by state law unless there is some overriding federal interest.
In KY a manufactured home is personal property requiring a title. In said state for perfection, a lien must be noted on the title. Also, personal property there may be converted to an improvement to real estate…subsequently allowing “perfection through first recording without notice”.
A manufactured home is not part of the land when nothing is recorded on the certificate of title, or no affidavit filed with the county clerk, that the home is affixed to real property. An attached manufactured home without title may be conveyed by deed only.
Bearing on this case, the manufactured home is not subject to the Bank’s lien, rather only an improvement to the real property.
Although the UCC offers consideration that a mortgage may “have priority over a security interest in a manufactured home”…arguments (as this) raised for the first time on appeal, are not as a policy considered by the 6th Circuit.
The Bankruptcy Court Order, regarding the Debtor seeking to avoid the Bank’s interest in a manufactured home per 11 USC Sec. 544, was affirmed.