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Requirements for Attachment, Enforceability and Perfection of Security Interests (Vermont)

Last Reviewed: January 2021

Overview / Terminology

“Real property” (a/k/a “realty” or “real estate”) can be defined as land, buildings, and structures on land. Personal property (a/k/a “personalty”) is anything that is not real property including cash, accounts, cars, and personal belongings.

The terms “lien” and “security interest” are essentially synonymous and can be used interchangeably. However, “lien” is often used in the context of real property and “security interest” for personal property.

Generally, a lien or security interest is said to “attach” when it becomes enforceable with respect to some particular property. Usually, this happens at the time the lien or security interest is created. A lien or security interest is said to be “perfected” when it is recorded in such a way as to put the world on notice of the lien or security interest.

Under Vermont law there are very different approaches to attachment and perfection of liens or security interests in real property vs. personal property.

In general terms, liens on real property attach through execution of a valid mortgage deed and are perfected by recording in the land records, while liens on personal property attach through execution of a written security agreement and are perfected by filing a financing statement with the Vermont Secretary of State. There are many exceptions. The general rules on liens on real and personal property and important exceptions are discussed in more detail below.

General Rules on Attachment, Enforceability and Perfection of Security Interests in Personal Property

The default rule is that all security interests in personal property are governed by Vermont’s Uniform Commercial Code Title 9A V.S.A. Article 9 (hereinafter referred to as the “UCC”). See Title 9A V.S.A. §9-109(a). Exceptions are listed at Title 9A V.S.A. §§9-109(c) and 9-109(d). 

Real property is not subject to the UCC except with respect to certain agricultural liens, land proceeds, and fixtures. Title 9A V.S.A. §9-109(d)(11).  For more on fixtures, see below under the subheading “Attachment, Enforceability and Perfection of Liens on Real Estate.”

Attachment and Enforceability of Security Interests Under the Uniform Commercial Code

Under the UCC a security interest attaches to personal property when it becomes enforceable against the debtor, unless there is an agreement expressly postponing attachment. Title 9A V.S.A. §9-203(a). Enforceability is governed by the following requirements set forth in Title 9A V.S.A. §9-203(b):

1) value has been given; 2) the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and 3) one of four possible conditions has been met regarding authentication, possession and control, namely:

(A) the debtor has authenticated a security agreement that provides a description of the collateral and, if the security interest covers timber to be cut, a description of the land concerned;

(B) the collateral is not a certificated security and is in the possession of the secured party under section 9-313 of Title 9A pursuant to the debtor’s security agreement;

(C) the collateral is a certificated security in registered form and the security certificate has been delivered to the secured party under section 8-301 of Title 9A pursuant to the debtor’s security agreement; or

(D) the collateral is deposit accounts, electronic chattel paper, investment property, letter of credit rights, or electronic documents, and the secured party has control under section 7-106, 9-104, 9-105, 9-106, or 9-107 of Title 9A pursuant to the debtor’s security agreement.

(Note that Title 9A V.S.A. section 9-203(c) makes the foregoing section 9-203(b) subject to rules about certain security interests that become enforceable under other circumstances, such as the security interest of a collecting credit union in items deposited and items for which it has given credit under Title 9A V.S.A. section 4-210.)

Perfection of Security Interests Under the UCC

If a security interest is enforceable and attaches under Title 9A V.S.A. §9-203 that means that it is effective between the debtor and the lender, but not that it will necessarily take priority over the interests of other creditors or purchasers. In order for a security interest to have the highest possible priority over other creditors or purchasers it should be perfected. (Note: for more information on priority between conflicting security interests based on perfection or non-perfection and timing see Title 9A V.S.A. §9-322.)

  1. general rule under the Uniform Commercial Code is that perfection is accomplished by filing a UCC-1 financing statement with the Vermont Secretary of State. However, there are many exceptions to this filing requirement. For the general rule and a list of exceptions see Title 9A V.S.A. §9-310. See also Title 9A V.S.A. §§9-312 to 9-314 on perfection of security interests in money, deposit accounts etc. by possession and control. A security interest in some types of personal property is perfected automatically upon attachment. See Title 9A V.S.A. §9-309. For other types of personal property the method of perfection is outside the scope of the Uniform Commercial Code and subject to other statutes and regulations, such as motor vehicles, discussed below. See Title 9A V.S.A. §9-311.

Title 9A V.S.A. sections 9-301 to 9-309 describe when the local law of a jurisdiction governs perfection and priority of security interests in certain types of collateral.

Attachment, Enforceability and Perfection of Liens on Real Estate

A lien on real estate is created in Vermont by executing a mortgage deed. A mortgage deed conveys title to the property to the mortgage holder (a/k/a “mortgagee,”), which would be the credit union for our purposes. The mortgagee simultaneously lends money to the original title holder (a/k/a “mortgagor”), which would be the borrower, under a promissory note. The terms of the mortgage state that upon repayment of the note the mortgagor can redeem the mortgage and reclaim clear title to the property. According to Title 27 V.S.A. §342 a mortgage must be recorded in the appropriate town or city land records to be effective against anyone other than the mortgagor and his or her heirs. This recording can be said to “perfect” the lien.  (Note: In fact, case law has established that if a subsequent purchaser of the property has actual notice of an unrecorded mortgage then the mortgage is effective against the subsequent purchaser. For credit union purposes, however, and as a general rule, a mortgage should always be promptly recorded.)

It is worth noting that security interests in “fixtures” on real property can follow separate rules than the real property itself. The Vermont Uniform Commercial Code defines “fixtures” at Title 9A V.S.A. §9-102(41) as “goods that have become so related to particular real property that an interest in them arises under real property law.” In more practical terms fixtures can be understood as features or appliances that are permanently attached to real property in such a way that they can’t be removed without some damage or diminution in value to the property. An example of this would be a built-in furnace or other built-in heating or cooling system. Security interests in fixtures are governed by the Vermont Uniform Commercial Code Title 9A V.S.A. §9-604.

Attachment, Enforceability, and Perfection of Security Interests in Motor Vehicles

Attachment and Enforceability of Security Interests in Motor Vehicles

Motor vehicles are personal (non real-estate) property subject to the the general rules on attachment and enforceability of security interests in Article 9 of Vermont’s Uniform Commercial Code (see above for general rules).  However, it is important to note that the perfection of security interests in motor vehicles does not require the filing of a financing statement under Article 9 of the UCC.  Perfection of security interests in motor vehicles is discussed further below.

A common way for a security interest to attach to a motor vehicle in Vermont is through an indirect lending transaction resulting in a motor vehicle retail installment contract under Title 9 V.S.A. Chapter 59.  For more information on indirect lending and retail installment contracts see the Infosight Indirect Lending (Vermont) Topic in the Loans and Leasing Channel.

Perfection of Security Interests in Motor Vehicles

The perfection of security interests in motor vehicles is specifically exempted from the requirement of filing a financing statement under the UCC. See Title 9A V.S.A. §9-311(a)(2)).  Rather, perfection of security interests in motor vehicles in Vermont is governed by procedures set forth in Title 23 of the Vermont statutes Chapter 21 Subchapter 3 (§§2041-2048).

A security interest in a motor vehicle of a type for which a certificate of title is required is not valid against creditors of the owner or subsequent transferees or lienholders unless perfected in accordance with Title 23 V.S.A. §2042. (Note: there are certain minor exceptions to the need to perfect listed in Title 23 V.S.A. §2041, such as a lien by a supplier of services or materials for the vehicle.) A security interest is perfected by delivery to the Commissioner of the Department of Motor Vehicles of the existing certificate of title, if any, application for a certificate of title containing the name and address of the lienholder and the date of his or her security agreement, and the required fee. The security interest is perfected as of the time of its creation if the delivery of the documents is completed within 20 days, otherwise as of the time of delivery. Title 23 V.S.A §2042(b).

If a motor vehicle is already subject to a security interest when it is brought into Vermont, then the validity and perfection of that interest is controlled by Title 23 V.S.A. §2042(c).

The duties of the owner and lienholder and any subordinate lienholder in the course of creation and perfection of a security interest in a motor vehicle are described in Title 23 V.S.A. §2043. If the owner creates a security interest in a motor vehicle the owner shall immediately execute an application to have the lienholder named on the certificate of title, either in a space provided on the certificate or on a separate form prescribed by the Commissioner of Motor Vehicles. The owner then delivers the certificate, application, and required fee to the lienholder. The lienholder then immediately mails or delivers the certificate, application, and fee to the Commissioner. If the security interest is created by a subordinate lienholder and the certificate of title is in the possession of a superior lienholder the superior lienholder mails or delivers the certificate to the subordinate lienholder, upon request. If the subordinate lienholder has already provided the owner’s application and fee, the superior lienholder mails or delivers the documents to the Commissioner. Upon receipt of the certificate, application, and fee, the Commissioner either endorses the certificate or issues a new certificate containing the name and address of the new lienholder, then mails the certificate to the first lienholder named on it.

Some Additional Information Regarding Titling of Motor Vehicles

It may be useful for credit unions to know that Title 23 V.S.A. §2012 exempts certain motor vehicles from needing a certificate of title, including but not limited to a motor vehicle that is more than 15 years old.  Also, 23 V.S.A. §2013(2) describes how a Vermont resident may apply for an “exempt vehicle title” for a vehicle that is more than 15 years old.

Attachment, Enforceability and Perfection of Security Interests in Vessels, Snowmobiles, and All-Terrain Vehicles

Attachment and Enforceability of Security Interests in Vessels, Snowmobiles, and All-Terrain Vehicles

Vessels, snowmobiles and all-terrain vehicles are personal (non real-estate) property subject to the general rules on attachment and enforceability of security interests in Article 9 of Vermont’s Uniform Commercial Code (see above for general rules).  However, it is important to note that the perfection of security interests in vessels, snowmobiles, and all-terrain vehicles does not require the filing of a financing statement under Article 9 of the UCC.  The perfection of security interests in vessels, snowmobiles, and all-terrain vehicles is discussed further below.

A security interest in a vessel, snowmobile, or all-terrain vehicle may attach through retail installment sales financing.  Credit unions should be aware, however, that vessels, snowmobiles, and all-terrain vehicles are not considered to be “motor vehicles” under Vermont’s Motor Vehicle Retail Installment Sales Financing Act Title 9 V.S.A. Chapter 59. The definition of “motor vehicle” at Chapter 59 §2351(1) is not entirely clear on this point. However, the Vermont Department of Financial Regulation has concluded in Banking Bulletin #46 that when Chapter 59 is read in conjunction with Vermont’s Retail Installment Sales Act Title 9 V.S.A. Chapter 61, the distinguishing characteristic of a “motor vehicle” is that it is “designed to be used primarily to transport persons or property on a public highway.” Therefore, retail installment sales financing of vessels, snowmobiles, and all-terrain vehicles would be done under Title 9 V.S.A. Chapter 61 rather than Chapter 59.

Perfection of Security Interests in Vessels, Snowmobiles, and All-Terrain Vehicles

The perfection of security interests in vessels, snowmobiles and all-terrain vehicles is specifically exempted from the requirement of filing a financing statement under Vermont’s Uniform Commercial Code. See Title 9A V.S.A. §9-311(a)(2).  Rather, perfection of security interests in vessels, snowmobiles, and all-terrain vehicles in Vermont is governed by procedures set forth in Title 23 V.S.A. §3823.

A security interest in a vessel, snowmobile, or all-terrain vehicle of a type for which a certificate of title is required is not valid against creditors of the owner or subsequent transferees or lienholders unless perfected in accordance with Title 23 V.S.A. §3823 (Note: there are certain minor exceptions to the need to perfect listed in Title 23 V.S.A. §3822, such as a lien by supplier of services or materials for the vehicle). A security interest is perfected by delivery to the Commissioner of the existing certificate of title, if any, application for a certificate of title containing the name and address of the lienholder and the date of his or her security agreement, and the required fee. The security interest is perfected as of the time of its creation if the delivery of the documents is completed within 20 days, otherwise as of the time of delivery. Title 23 V.S.A §3823(b).

If a vessel, snowmobile, or all-terrain vehicle is already subject to a security interest when it is brought into Vermont, then the validity and perfection of that interest is controlled by Title 23 V.S.A. §3823(c).

The duties of the owner and lienholder and any subordinate lienholder upon creation of a security interest in a vessel, snowmobile, or all-terrain vehicle are described in Title 23 V.S.A. §3824. The owner shall immediately execute an application to have the lienholder named on the certificate of title, either in a space provided on the certificate or on a separate form prescribed by the Commissioner of Motor Vehicles. The owner then delivers the certificate, application, and required fee to the lienholder. The lienholder then immediately mails or delivers the certificate, application, and fee to the Commissioner. If the security interest is created by a subordinate lienholder and the certificate of title is in the possession of a superior lienholder the superior lienholder mails or delivers the certificate to the subordinate lienholder, upon request. If the subordinate lienholder has already provided the application and fee, the superior lienholder mails or delivers the documents to the Commissioner. Upon receipt of the certificate, application, and fee, the Commissioner either endorses the certificate or issues a new certificate containing the name and address of the new lienholder, then mails the certificate to the first lienholder named on it.

Some Additional Information Regarding Titling of Vessels, Snowmobiles, and All-Terrain Vehicles

The titling of vessels, snowmobiles, and all-terrain vehicles in Vermont is governed by Title 23 V.S.A. Chapter 36. “Vessels” are defined as every description of motorboat. “Motorboat” is broadly defined at Title 23 V.S.A. §3801(8).

Under Title 23 V.S.A. §3807 certain vessels, snowmobiles, and all-terrain vehicles are exempted from titling requirements, including but not limited to any vessel under 16 feet in length or more than 15 years old and any snowmobile or all-terrain vehicle that is more than 15 years old.

Federally Registered Vessels

In some cases, a boat used as collateral for a loan may be federally registered with the United States Coast Guard. Generally speaking, any vessel that measures at least five net tons (typically longer than 25 feet), with the exception of certain oil spill response vessels, that is wholly owned by a citizen of the U.S. may be federally registered (or, in the vernacular of the Coast Guard, “documented.” (In general, vessels of five net tons or more used in fishing activities on navigable waters of the U.S. or in the Exclusive Economic Zone (EEZ), or used in coastwise trade must be documented.)

In order to perfect a security interest in a vessel that is documented, a lender will need to record a Preferred Ship’s Mortgage (along with some other documentation) with the US Coast Guard.

The US Coast Guard maintains a documentation data base (USCG National Vessel Documentation Center), through which a party can search the records to confirm documentation and to determine whether there are any prior existing liens on a vessel.

It is in both the credit union’s and its member’s best interest to carefully search these records for any liens. Under federal maritime law, crew wages, pre-existing mechanics liens, or salvage liens take priority over a Preferred Ship’s Mortgage (in fact, crew wages and salvage liens generally take priority even over a prior-recorded Preferred Ship’s Mortgage).

Taking a security interest in a federally registered vessel carries unique risks, and the professional services of an attorney familiar with admiralty / maritime law is highly recommended when engaging in this type of lending. As an additional precaution, a credit union considering securing a loan with a documented vessel should check with its bond carrier, to determine whether it needs to add any sort of endorsement that would help the credit union insure against the risk of loss due to this unique method of lien perfection.

Security Interests in Mobile Homes

Security interests in mobile homes in Vermont are complicated by the fact that a mobile home can be financed as either real estate or personal property, depending on whether it is or is intended to be permanently sited for continuous residential occupancy on land owned or leased by the owner. See Title 9 V.S.A. §2603. If a mobile home is or is intended to be permanently sited and is financed as real estate then a lien takes the form of a real estate mortgage. Real estate mortgages are discussed above under the subheading “Attachment, Enforceability and Perfection of Liens on Real Estate.” There are model real estate deed forms specific to mobile homes at Title 9 V.S.A. §2604.

If a mobile home is not financed as real estate then, according to Title 9 V.S.A. §2603, it can be financed in several other ways. A mobile home can be financed through a motor vehicle retail installment contract under Title 9 V.S.A. Chapter 59. A mobile home may also be financed by a loan or extension of credit according to the rates set forth in Title 9 V.S.A. §41a(b)(4).

In general, the transfer of title to a mobile home is recorded by a mobile home bill of sale filed with the appropriate town clerk pursuant to Title 9 V.S.A. §2602(b). However, it is worth noting that where title is conveyed by mortgage deed for the purpose of financing the mobile home as real estate, no bill of sale is required. See Title 9 V.S.A. §2602(b)(8)(A).

Along with other information required to be included on the mobile home bill of sale, it must state whether the sale constitutes a retail installment transaction subject to Title 9 V.S.A. Chapter 59. It must also include an itemized list of any known liens on the mobile home. See Title 9 V.S.A. §2602(c).

Each mobile home situation is fact specific and should be considered as such by credit unions. Often, in practice, lenders secure liens on mobile homes with both a mortgage recorded in the land records and a security agreement recorded on the mobile home bill of sale. Also, the Vermont Secretary of State’s office reported as of April 2020 that UCC-1 financing statements are often filed with that office for mobile homes. When securing a lien on a mobile home a credit union may wish to consult an attorney on whether the mobile home is real or personal property and what sort of filing/recording is required.

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