In re Davis, 528 B.R. 757 (Bankr. E.D. Tenn. 2015).
A bankruptcy trustee brought an adversary proceeding against a mortgagee, claiming a priority interest in settlement proceeds paid by a third party for damage to the debtor’s mortgaged real property. The trustee contended that the mortgagee’s interest in the proceeds was unperfected because of its failure to file a UCC financing statement.
The bankruptcy court denied the trustee’s motion for summary judgment, finding that the settlement proceeds were substitute collateral for the diminution in value of the real property and subject to the mortgagee’s lien under its deed of trust, rather than, as argued by the trustee, merely personal property – general intangibles or proceeds of litigation – for which UCC perfection is required. The court ordered payment of the settlement proceeds to the mortgagee notwithstanding its failure to perfect under the UCC.
