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Notes -
Court opinion:
A person lives on a property that sits directly on top of the line between Trimble County and Carroll County in Kentucky. Most of the house is in Carroll County, but the driveway and part of the house are in Trimble County. The property's deed, and two mortgages on the property, are recorded with the Carroll County clerk, and the property tax is paid to Carroll County. However, the person's driver license states that he resides in Trimble County, and he has voted in Trimble County in the four most recent elections.
The person buys on credit, registers, and titles a semi-truck in Trimble County. Accordingly, the creditor files a lien on the truck with the Trimble County clerk. However, when the person files for bankruptcy, he argues in bankruptcy court: he actually resides in Carroll County; since the lien was not filed in his county of residence, it is invalid under state law; and, therefore, the lien must be "avoided" (deleted) in the federal bankruptcy.
The bankruptcy judge agrees with the debtor and avoids the lien. A slight majority of the property is in Carroll County, so the deed was recorded in Carroll County, and that is conclusive proof of the debtor's county of residence under state law. State law incorporates "a policy of certainty in the recording of mortgages on both real and personal property", and allowing a person to pick and choose which of two counties is his county of residence would frustrate that policy. The debtor cannot be faulted for giving the wrong county of residence in the credit application, as (1) the application was only attested, not sworn, before a notary, and (2), if the application was not sworn, then under state law it was the creditor's responsibility to check the county of residence before filing the lien.
This is the sort of rules-lawyering I'm never in favor of, even when it helps out "the common man". IMO the creditor "deserves" to take the truck, morally. The man falsely declared his county of residence, and checking his license (which I assume is the main way a dealer would confirm that information) would have backed that up. They should be allowed to re-file the lien in the proper county if it's that big a deal and reclaim the truck.
As I wrote above, his driver's license was in the wrong county as well. Only his house's deed and mortgages were in the correct county.
Yes, that's what I mean - if they verified his address by checking his license (which I would assume the standard would be), it would back up his statement that he's from Trimble, not Carroll. If someone says they're from Trimble, their license says they're from Trimble, and the car they're buying from you is registered and titled in Trimble, I don't think the dealer should be culpable for the lien being placed in Trimble.
Under Kentucky, law, they aren't; that's the purpose of the safe harbor provision. The problem is that they didn't comply with the safe harbor provision by only getting an attestation rather than a sworn declaration. To be clear, all an attestation is is a verification by the notary that the person whose signature is on the document is the person who signed it. The change would have been trivial to make at the time of signing, and the bank shouldn't be exempt from the consequences of not following the law.
I thought one of the main purposes of property registration regimes - including car titles - was certainty around liens. If the car is titled in Trimble, a lien against it in Trimble should be valid regardless of where the owner lives. Anything else leads to an absurdity, as the instant case demonstrates.
I'm not going to defend Kentucky's system of vehicle registration, because it's dumb. In PA and Ohio at least, liens are recorded in the county where the vehicle is registered, period. In PA it isn't even recorded at the courthouse, just with the DOT, which makes sense since the records aren't public anyway due to Federal law. The legislature had a chance to change it but they put a safe harbor provision in instead. That being said, the court can't just ignore the system that exists because they'd prefer a better system. The bank is the sophisticated party here, and they should know, understand, and follow the law as it exists, at peril of their lien not being recognized. I have no sympathy for them.
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According to the opinion, Kentucky's policy has held otherwise since 1914 (Burbank & Burbank v. Robek) at the latest.
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