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Financial Svcs. v. Fink (In re Beasley), 522 U.S. 211, 118 S. Ct. 651, 139 L. Ed.2d 571 (1998); accord In re Hamilton, 892 F.2d 1230 (5th Cir. 1990); In re Loken, 175 B.R. 56 (9 Cir. B.A.P. 1994); contra In re Hesser, 984 F.2d 345 (10th Cir. 1993) (abrogated by Fink,
supra); In re Busenlehner, 918 F.2d 928 (11th Cir. 1990) (abrogated by Fink, supra).
Section 547(c)(3) prevents the avoidance of liens and security interests that secure loans made to a Debtor for the specific purpose of acquiring the property that serves as collateral for the loan. The elements of the defense closely track the criteria described in Article 9 of the Uniform Commercial Code for the creation of a purchase money security interest. See UCC S 9-103. In fact, the 20-day safe harbor provision was adopted in 1994, replacing the former 10-day period - to align the Code with the laws of the states, most of which allow 20 days for perfection of a purchase money security interest.
The elements of the defense set forth in the statute are largely self-explanatory; the two principal issues under Code section 547(c)(3) are related to the timing of the perfection of the security interest: Following BAPCPA, the safe harbor is further extended to 30 days.
1. State law perfection periods versus section 547(c)(3)(B). This issue involves the 30-day safe-harbor period (as expanded under BAPCPA) for perfecting the security interest in the enabling-loan/purchase-money collateral. In some instances, the relevant state law provided for a longer safe-harbor period that the Bankruptcy Code provides. Secured creditors argued that, so long as they perfected within the time permitted by the relevant state law, their security interests should be immune from avoidance under Code section 547(c)(3). The Circuits Courts were split on this issue, until the Supreme Court decided the matter in Fidelity Financial Services, Inc. v. Fink, 522 U.S. 211, 118 S. Ct. 615, 139 L. Ed. 2d 571 (1998). The Court held that the 20-day time period set out in the Bankruptcy Code trumps any longer period under state law. Therefore, if a secured creditor has not perfected its purchase-money security interest within the 30 days specified in S 547(c)(3)(B), the interest is subject to avoidance, even if the interest was perfected within the appropriate (longer) time period under state law. A further discussion and application of Fink can be found in Moser v. Toyota Motor Credit Corp. (In re Davis), No. 07-42789, 2009 WL 1033194 (Bankr. E.D. Tex. March 24, 2009) (holding that, under Texas law, submission of an application for certificate of title perfects the lien on a vehicle; thus, if a creditor submits the application within the 30-day period, the lien is perfected, even if the title is not actually issued until after the 30-day period); see also Brock v. Branch Banking & Trust Co., ---B.R. ---, 2010 U.S. App. LEXIS 13588 (6th Cir. 2010) (holding that creditors failure to perfect interest in motor vehicle by notation on the certificate of title within 20 days, as required by state law, rendered S 547(c)(3) inapplicable and the transfer was avoided as preferential).
2. Relation between SS 547(c)(3) and 547(c)(1). A secured creditors who fail to perfect their enabling-loan/purchase-money security interests within the 30-day safe
