November 2024 OBA Legal Briefs

November 20, 2024

Vulnerable Adult Abuse, Neglect and Exploitation Report
Perfection of security interest
Questions from our members
Reconsideration of Value Q&As

By Pauli Loeffler

Vulnerable Adult Abuse, Neglect and Exploitation Report

In the September 2023 OBA Legal Briefs, I noted that Tit. 43A O.S. § 10-111.1 was added to the Oklahoma statutes in 2018 and amended Effective January 1, 2024 requiring the Office of the Attorney General to establish and maintain the Vulnerable Adult Abuse, Neglect and Exploitation Registry accessible to the public in an electronic format and updated quarterly, to include:

1. A procedure for recording individuals on the registry who have been found guilty by a court of law or entered a plea of guilty or nolo contendere to a charge of abuse, neglect, or exploitation of a vulnerable adult; and

2. Disclosure requirements for information that is accessible on the registry.

B. The Vulnerable Adult Abuse, Neglect and Exploitation Registry shall include, but not be limited to:

1. The full name of the individual;
2. Information necessary to identify the individual;
3. The disposition and other identifying case information regarding convictions or confessions of abuse, neglect, or exploitation in a court of law; and
4. The date the individual was convicted or pled guilty or nolo contendere.

The Registry is compiled by the Oklahoma State Bureau of Investigation (OSBI). You can click here to view the Registry or copy and paste the link below.

(https://oklahoma.gov/content/dam/ok/en/oag/documents/divisions/medicaid-fraud-control-unit/registry/2024-10-21%20-%20Elder%20Abuse%20Registry%20from%20OSBI%20for%20posting%20on%20MFCU%20website.pdf)

You may remember that under the Oklahoma Uniform Durable Power of Attorney Act, if the bank receives a properly executed power of attorney, e.g., signed by the principal and notarized, the bank must accept the DPOA unless one of 6 reasons for denial apply. One of those reasons is: The Bank itself has made or has actual knowledge that another person has made a report to Oklahoma Adult Protective Services stating a good-faith belief that the principal may be subject to physical or financial abuse, neglect, exploitation or abandonment by the agent or a person acting for or with the agent.

It isn’t uncommon for a banker to have a bad feeling about the Agent named in the DPOA, and the Attorney General’s public registry may be of use in such cases.

Perfection of security interest

Lien entries on vehicles, manufactured homes

Two bankers reached out to me last month on what they should do when title to a vehicle or a manufactured/mobile home has an existing lien, and the bank is making a loan to a borrower to purchase the vehicle or manufactured home. Since Oklahoma is a Title holding state, the current lender holds the title and will not release its lien until its loan is paid in full. What happens if the collateral is transferred to the new owner before the new lender has filed its lien entry?

Let’s start with a vehicle. Joe Blow is selling his truck to Bob Smith who has come to your bank for a loan to purchase Joe’s truck for $6,000. There’s a lien on the title filed by Mega Bank for $4,500, and as the secured party, it holds the title. Your bank is concerned that when you pay off pay off MegaBank and Joe receives the lien release, he will have clear title and sell the truck to someone other than Bob for a higher price. This leaves Bob with a loan but no truck, and your bank with a loan with no collateral securing it.

In a prior Legal Brief covering new advances secured by prior liens where the bank wants to “lend back up” to the amount of a paid down loan, I warned banks that this will not work unless the loan provides for mandatory future advances which is rare for a consumer loan. In such cases, the bank is advised to file another lien entry for the new money. As I recall there is a definite number of active lien entries permitted to filed on the same title, but I do not remember whether that number is four, five, or six.

In order to avoid the situation involved above, your bank can protect itself by filing a lien entry on the vehicle’s title as soon as the Bob signs the security agreement, and your lien will be reflected on the title. The lien will be subordinate to MegaBank’s until it is paid off, at which point MegaBank’s lien will be removed from the title at which point your bank will be the one holding the title. Your bank will pay Mega directly, and Mega must timely release its lien pursuant to Tit. 47 O.S. § 1110. Your bank’s lien on the truck will be first in priority and will maintain that priority until your lien the loan is paid in full.

Perfection of a security interest in a manufactured home with a certificate of title is likewise by lien entry, but it is not the same as for vehicles. You need to be aware of Tit. 47 Sec. 1110 E. (below). The manufactured home must be registered, and the certificate of title will show the lien. If the owner of the manufactured home owns the real estate, the lien on the title will prevent merger of title into the real estate unless there is compliance with 1110 E.

E. If a manufactured home is permanently affixed to real estate, an Oklahoma certificate of title may be surrendered to Service Oklahoma or a licensed operator for cancellation. When the document of title is surrendered, the owner shall provide the legal description or the appropriate tract or parcel number of the real estate and other information as may be required on a form provided by Service Oklahoma. Service Oklahoma may not cancel a document of title if a lien has been registered or recorded. Service Oklahoma or the licensed operator shall notify the owner and any lienholder that the title has been surrendered to Service Oklahoma and that Service Oklahoma may not cancel the title until the lien is released. Such notification shall include a description of the lien and such notification to the owner shall be accompanied by the return of title surrendered. Permanent attachment to real estate does not affect the validity of a lien recorded or registered with Service Oklahoma before the document of title is canceled pursuant to this section. The rights of a prior lienholder pursuant to a security agreement or the provisions of a credit transaction and the rights of the state pursuant to a tax lien are preserved…

If the certificate of title to the manufactured home has been surrendered, what happens if the owner of both the real estate and the manufactured home wants to sell the manufactured home to a new owner? §1110 E. provides:

The owner of a manufactured home upon which the document of title has been properly surrendered may apply to Service Oklahoma for issuance of a new original certificate of title upon submission of:

1. An attestation from the homeowner indicating ownership of the manufactured home and the nonexistence of any security interest or lien of record in the manufactured home; and

2. A title opinion by a licensed attorney, determining that the owner of the manufactured home has marketable title to the real property upon which the manufactured home is located and that no documents filed of record in the county clerk’s office concerning the real property contain a mortgage, recorded financial statement, judgment, or lien of record. Persons or entities to whom the title opinion is addressed may rely on the title opinion. A security interest in a manufactured home perfected pursuant to this section shall have priority over a conflicting interest of a mortgagee or other lien encumbrancer, or the owner of the real property upon which the manufactured home became affixed or otherwise permanently attached. The holder of the security interest in the manufactured home, upon default, may remove the manufactured home from such real property. The holder of the security interest in the manufactured home shall reimburse the owner of the real property who is not the debtor and who has not otherwise agreed to access the real property for the cost of repair of any physical injury to the real property, but shall not be liable for any diminution in value to the real property caused by the removal of the manufactured home, trespass, or any other damages caused by the removal. The debtor shall notify the holder of the security interest in the manufactured home of the street address, if any, and the legal description of the real property upon which the manufactured home is affixed or otherwise permanently attached and shall sign such other documents, including any appropriate mortgage, as may reasonably be requested by the holder of such security interest.

Note that if the mobile home is affixed to real estate that is not owned by the mobile home owner, the bank should obtain a waiver of landlord’s lien from the owner of the real estate in the event the bank needs to repossess the manufactured home.

Another observation is with regard to fixture filings when the mobile home is not owned by the same person that owns the real estate. Let’s say Cousin Lucy’s manufactured home has a certificate of title and is on Uncle Albert’s land which has no mortgage.

This is the case when a manufactured home is expected to be located on a property semi-permanently, but the lender is not taking a mortgage on the real estate.

In this situation, a borrower may intend to create a fairly elaborate set-up even if he does not own the land, and the loan officer perhaps can determine in advance that there will be substantial “fixtures” available for pledging. Some banks just have a standard policy of taking a UCC-1 in fixtures, to cover any substantial improvements that are external to the trailer, existing now or later.

A UCC-1 filing in fixtures will include external items that are at least semi-attached to the real estate, such as by bolts, nails, wires, or plumbing. “Fixtures” could include an elaborate deck built around the trailer, a semi-movable storage shed, greenhouse or carport, an above-ground pool, a boat dock, or a replacement heating/cooling unit installed on a concrete pad outside the trailer. Filing a UCC-1 in fixtures “carves away” the fixtures belonging to the borrower from the underlying landowner’s interest in the real estate.

On the other hand, a manufactured home located in an ordinary trailer park it is unlikely to have extra ground space nor any intention of locating fixtures outside the trailer. A UCC-1 covering “fixtures” belonging to the borrower will not have much benefit to the bank.

In contrast to fixtures included in a mortgage (perfected for the life of the mortgage), a UCC-1 filing that covers fixtures will normally lapse five years after the date of filing, unless a continuation statement is filed, etc. However, for UCC-1 filings in connection with a mobile home loan, a little-known UCC “exception” seems to provide a way that a lender can obtain a perfection period substantially longer than five years. § 1-9-515(b) of the UCC states that an initial financing statement will be effective “for a period of 30 years after the date of filing” if filed in connection with a “manufactured home transaction.” To achieve a 30-year period of effectiveness, the financing statement must indicate that it is filed in connection with a “manufactured home transaction.”

§ 1-9-102(a)(54) of the UCC, a “manufactured home transaction” is a secured transaction (not involving a dealer’s inventory) that either (A) “creates a purchase-money security interest in a manufactured home,” or (B) is one “in which a manufactured home . . . is the primary collateral.” This does not state that the manufactured home must be listed on the UCC-1 (which would not be effective in Oklahoma anyway). It just says the loan has to be for the purpose of purchasing the trailer, or has to be mainly secured by the trailer. In this situation, any UCC-1 filed on lesser categories of personal property collateral, taken as part of a mobile home loan, could apparently be perfected for a period of 30 years if the UCC-1 states that it is filed “in connection with a manufactured-home transaction.” Apparently both a UCC-1 on fixtures, filed in the local county, and a UCC-1 filed centrally in additional categories of collateral pledged in connection with a manufactured-home loan (such as “equipment” or “household furnishings,” or “consumer goods”) could fit the requirements.

Semi-trailers

If registration of title is required under Oklahoma law (Title 47, statutes below), then perfection is by lien entry, and a UCC filing accomplishes nothing. If registration is optional (may be registered to show ownership, e.g., horse trailers, farm trailers, boat trailers, etc.) perfection is by UCC filing, and a lien entry does nothing, See IN RE: JENNIFER LYNN JACKSON, Debtor. SUSAN MANCHESTER, Trustee, Plaintiff, v. ARVEST BANK, Defendant. CERTIFIED QUESTION OF LAW. 287 P.3d 986 (2012)

¶18 The modified certified question presented by the United States Bankruptcy Court for the Western District of Oklahoma is answered with specific explanations relevant to the case at bar. Title may be properly issued by the Oklahoma Tax Commission to non-required trailers for the convenience of showing ownership. The use of title beyond this single purpose for non-required vehicles would be contrary to the general scheme and purposes of the Uniform Commercial Code as adopted in Oklahoma. The proper method for perfecting a security interest in collateral that is not required to be titled (but may be titled at the discretion of the owner) still is, and has been by the filing of a UCC-1 financing statement.

Title 47 O.S. § 1105

B. The owner of every vehicle in this state shall possess a certificate of title as proof of ownership of such vehicle, except those vehicles registered pursuant to Section 1120 of this title and trailers registered pursuant to Section 1133 of this title, previously titled by anyone in another state and engaged in interstate commerce, and except as provided in subsection M of this section. Except for owners that possess an agricultural exemption permit pursuant to Section 1358.1 of Title 68 of the Oklahoma Statutes, the owner of an all-terrain vehicle or a motorcycle used exclusively off roads or highways in this state which is purchased or the ownership of which is transferred on or after July 1, 2005, and the owner of a utility vehicle used exclusively off roads and highways in this state which is purchased or the ownership of which is transferred on or after July 1, 2008, shall possess a certificate of title as proof of ownership. Any person possessing an agricultural exemption permit and owning an all-terrain vehicle or a motorcycle used exclusively off roads or highways in this state which is purchased or the ownership of which is transferred on or after July 1, 2008, shall possess a certificate of title as proof of ownership. Upon receipt of proper application information by such owner, the Oklahoma Tax Commission shall issue an original or transfer certificate of title. Until July 1, 2008, any security interest in an all-terrain vehicle that attached and was perfected before July 1, 2005, and that has not otherwise terminated shall remain perfected, and shall take priority over any subsequently perfected security interest in the same all-terrain vehicle, notwithstanding that a certificate of title may have been issued with respect to the same all-terrain vehicle on or after July 1, 2005, and that a lien may have been recorded on said certificate of title.

Title 47 O.S. § 1102

As used in the Oklahoma Vehicle License and Registration Act:

6. “Commercial trailer” means any trailer, as defined in Section 1-180 of this title, or semitrailer, as defined in Section 1-162 of this title, when such trailer or semitrailer is used primarily for business or commercial purposes…

29. “Recreational vehicle” means every vehicle which is built on or permanently attached to a self-propelled motor chassis or chassis cab which becomes an integral part of the completed vehicle and is capable of being operated on the highways. In order to qualify as a recreational vehicle pursuant to this paragraph such vehicle shall be permanently constructed and equipped for human habitation, having its own sleeping and kitchen facilities, including permanently affixed cooking facilities, water tanks and holding tank with permanent toilet facilities. Recreational vehicle shall not include manufactured homes or any vehicle with portable sleeping, toilet and kitchen facilities which are designed to be removed from such vehicle. Recreational vehicle shall include park model recreational vehicles as defined in this section…

Purchase Money Security Interest, blanket filing

A recent email from a banker asked whether it would have a valid UCC if it states: Purchase Money Security Interest in All Equipment, Livestock, etc. if they don’t list any specific pieces of collateral for a valid blanket filing.

In this case, the answer is found in Tit. 12 O.S. Sec. 1-9-324:

PRIORITY OF PURCHASE-MONEY SECURITY INTERESTS

(a) Except as otherwise provided in subsection (g) of this section, a perfected purchase-money security interest in goods other than inventory or livestock has priority over a conflicting security interest in the same goods, and, except as otherwise provided in Section 1-9-327 of this title, a perfected security interest in its identifiable proceeds also has priority, if the purchase-money security interest is perfected when the debtor receives possession of the collateral or within twenty (20) days thereafter.

(b) Subject to subsection (c) of this section and except as otherwise provided in subsection (g) of this section, a perfected purchase-money security interest in inventory has priority over a conflicting security interest in the same inventory, has priority over a conflicting security interest in chattel paper or an instrument constituting proceeds of the inventory and in proceeds of the chattel paper, if so provided in Section 1-9-330 of this title, and, except as otherwise provided in Section 1-9-327 of this title, also has priority in identifiable cash proceeds of the inventory to the extent the identifiable cash proceeds are received on or before the delivery of the inventory to a buyer, if:

(1) the purchase-money security interest is perfected when the debtor receives possession of the inventory;

(2) the purchase-money secured party sends a signed notification to the holder of the conflicting security interest;

(3) the holder of the conflicting security interest receives the notification within five (5) years before the debtor receives possession of the inventory; and

(4) the notification states that the person sending the notification has or expects to acquire a purchase-money security interest in inventory of the debtor and describes the inventory.

(c) Paragraphs (2) through (4) of subsection (b) of this section apply only if the holder of the conflicting security interest had filed a financing statement covering the same types of inventory:

(1) if the purchase-money security interest is perfected by filing, before the date of the filing; or

(2) if the purchase-money security interest is temporarily perfected without filing or possession under subsection (f) of Section 1-9-312 of this title, before the beginning of the twenty-day period thereunder.

(d) Subject to subsection (e) of this section and except as otherwise provided in subsection (g) of this section, a perfected purchase-money security interest in livestock that are farm products has priority over a conflicting security interest in the same livestock, and, except as otherwise provided in Section 1-9-327 of this title, a perfected security interest in their identifiable proceeds and identifiable products in their unmanufactured states also has priority, if:

(1) the purchase-money security interest is perfected when the debtor receives possession of the livestock;

(2) the purchase-money secured party sends a signed notification to the holder of the conflicting security interest;

(3) the holder of the conflicting security interest receives the notification within six (6) months before the debtor receives possession of the livestock; and

(4) the notification states that the person sending the notification has or expects to acquire a purchase-money security interest in livestock of the debtor and describes the livestock.

(e) Paragraphs (2) through (4) of subsection (d) of this section applies only if the holder of the conflicting security interest had filed a financing statement covering the same types of livestock:

(1) if the purchase-money security interest is perfected by filing, before the date of the filing; or

(f) Except as otherwise provided in subsection (g) of this section, a perfected purchase-money security interest in software has priority over a conflicting security interest in the same collateral, and, except as otherwise provided in Section 1-9-327 of this title, a perfected security interest in its identifiable proceeds also has priority, to the extent that the purchase-money security interest in the goods in which the software was acquired for use has priority in the goods and proceeds of the goods under this section.

(g) If more than one security interest qualifies for priority in the same collateral under subsection (a), (b), (d), or (f) of this section:

(1) a security interest securing an obligation incurred as all or part of the price of the collateral has priority over a security interest securing an obligation incurred for value given to enable the debtor to acquire rights in or the use of collateral; and

(2) in all other cases, subsection (a) of Section 1-9-322 of this title applies to the qualifying security interests.

Questions from our members

Reg E

Q. I have a customer filing fraud on their sons account with his debit card. He is 19 and the primary account holder. She does not have a debit card in her name. This is the only card on the account in his name. Can I still dispute this transaction if the cardholder did not issue this case? I have tried calling and leaving voice messages to the primary account holder. I have also restricted his debit card. Is there anything in Reg E about this? I can’t seem to find anything involving this.

A. Reg E permits either owner to assert that an electronic funds transfer error occurred regardless of any VISA/Mastercard requirements to obtain a signed letter from the cardholder.

You can either attempt to investigate outside of the chargeback process by contacting the merchant directly or attempting a retrieval request (to which the merchant may or may not respond) or try contacting the cardholder and requesting that they provide the requested disputed letter to utilize the chargeback process (if available.)

LLC documentation

Q. The documentation we require to open a LLC business account include:

• Articles of Organization
• Resolution of LLC
• And verification of identities
• Beneficial ownership form

If the business does not supply the bank with the articles of organization, can we substitute the Certificate of LLC. The certificate actually states: “Whereas, the Articles of Organization of XYZ Dream Catcher OK LLC, an Oklahoma limited liability company has been filed in the office of the Secretary of State as provided by the laws of the State of Oklahoma?”

A. The reason I recommend the bank obtain the Articles of Organization is that they might state the Term of Existence as something other than Perpetual.

Follow-up question: Sometimes customers do not bring the bank the Articles of Organization, could the Bank utilize the one supplied on the Secretary of State’s website?

Response: The information on the SOS website confirms that the LLC is in existence and has not been suspended for non-payment of franchise tax, however it doesn’t give you information as to whether its existence is perpetual or for a set number of years which is why I recommend obtaining the Articles of Organization.

Initial ARM Notice

Q. When calculating the Initial ARM Notice of delivery timing requirement? According to 12 CFR 1026.20(d) the disclosure shall be provided to consumer at least 210, but no more than 240, days before the first payment at the adjusted level is due.

A. The notice under 1026.20(c) does not have to be given if there is no change in the interest rate that results in no corresponding change in the payment amount. However, 1026.20(d) is written totally differently. The early notice is only an estimate of what might happen in the future. I see no exception in 1026.20(d) like there is in 1026.20(c).

(c) Rate adjustments with a corresponding change in payment. The creditor, assignee, or servicer of an adjustable-rate mortgage shall provide consumers with disclosures, as described in this paragraph (c), in connection with the adjustment of interest rates pursuant to the loan contract that results in a corresponding adjustment to the payment.

(d) Initial rate adjustment. The creditor, assignee, or servicer of an adjustable-rate mortgage shall provide consumers with disclosures, as described in this paragraph (d), in connection with the initial interest rate adjustment pursuant to the loan contract.

Reconsideration of Value Q&As

Q. I am finalizing procedures for this rule. I was stumped by a comment from a lender stating that the rule applies only to loans secured by a single 1-4 family home; taking it to mean only one property can secure the loan. Is the lender correct? Does this not apply to real estate loans secured by more than one dwelling such as bridge loans. These are generally secured by equity in the borrower’s existing loan and the home being purchased. Could the borrower not question the value received on their existing home?

A. If the loan is secured by more than one 1-4 single family home, the borrower may request ROV on either property or both securing the loan, but each would be a separate ROV.

Q. Do ROV rules apply to commercial Loans secured by 1 to 4 family single residential dwellings? We have a commercial builder who has requested a reconsideration of the value of a spec home. We also have many commercial loans secured by 1-4 family dwellings, I would appreciate guidance on this matter.

A. In reviewing the July 2024 Interagency Guidance on Reconsiderations of Value of Residential Real Estate Valuations at this link: (https://www.federalreserve.gov/supervisionreg/srletters/SR2403a1.pdf ), it appears that the guidance only applies to consumers.

Q. Must the initial ROV Disclosure be provided during the application process prior to the applicant submitting the application, like the ARM/HELOC Disclosure, or can it be provided within 3 days of application? I am confused by the what is stated in the FreddieMac Selling Guide and FannieMae’s FAQs.

A. Your timing for the ROV disclosure will be the same as for the Loan Estimate (LE) and the Appraisal Notice under Sec. 1002.14. You will also have to provide the ROV disclosure at the same time you provide a copy of the appraisal.