Clark Contracting Svcs 2008 WL 5459818 (Bankr.W.D.Tex.)

Avoidance - Assigned Texas motor vehicle liens were not perfected absent notation of assignee's identity on certificates of title.

For its lien to be effective against innocent third parties such as judgment lien creditors, the assignee of a lien on a motor vehicle governed by the Texas Certificate of Title Act must take the affirmative steps set out in that enactment to have its identity as lienholder reflected on the certificates of title, a Texas bankruptcy court has held. Thus, the court rejected the argument of an assignee of six motor vehicle liens, which were duly perfected by the assignor prior to assignment, that it did not need to take any further action to maintain that perfection. Accordingly, the Chapter 11 debtor-in-possession could avoid the liens under its 544(b) "strong-arm" powers. Although, generally speaking, the assignment of a duly perfected security interest does not affect the perfection status of that security interest under Texas law, the rules are different when the collateral is a motor vehicle. Because there is no searchable database for lienholders on certificated vehicles, assigned liens on such vehicles must be notated on the certificates of title as a condition to continuous perfection.


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