## Facts

- In 1984, Capitol Federal Savings and Loan Association took and recorded a real estate mortgage on Paul and Margaret Hoger’s residence.
- In 1990, the Hogers bought a furnace and air conditioner on credit from KPL Gas Service (later Western Resources, Inc.) under an installment contract and promissory note.
- The furnace and air conditioner were installed in the residence and became fixtures.
- Western filed financing statements as a fixture filing in the county shortly after installation.
- Capitol Federal did not receive notice of, and did not consent to, Western’s fixture security interest.
- The Hogers defaulted on both the mortgage loan and the installment obligation.
- Capitol Federal filed a mortgage foreclosure action naming the Hogers, Western, and a junior mortgagee (which did not answer).
- Western answered and sought payment of its unpaid fixture debt (about $2,887.50) from the real estate foreclosure sale proceeds, asserting a purchase-money security interest (PMSI) in the fixtures.

## Issues

1. Whether a PMSI in fixtures, perfected by a timely fixture filing under K.S.A. 84-9-313(4)(a), has priority over a previously recorded real estate mortgage as to the fixtures.
2. Whether the fixture PMSI holder may satisfy its priority claim from the foreclosure sale proceeds, rather than being limited to repossessing the fixtures.

## Decision

- The Kansas Court of Appeals affirmed the district court.
- Western held a valid PMSI in the furnace and air conditioner, and the fixtures were properly perfected by a timely fixture filing.
- Under K.S.A. 84-9-313(4)(a), Western’s perfected PMSI had priority over Capitol Federal’s earlier mortgage as to the fixtures.
- Western could enforce that priority through payment from the real estate foreclosure sale proceeds attributable to the fixtures, up to the amount of its secured claim.

## Legal Principles

- A purchase-money security interest in fixtures perfected by a fixture filing before the goods become fixtures, or within 10 days thereafter, has priority over a conflicting real estate encumbrance as to those fixtures. K.S.A. 84-9-313(4)(a).
- Priority under the fixture rules is not defeated solely because the real estate mortgage was recorded earlier; the statute allocates priority for the fixtures when its conditions are met.
- When a fixture PMSI has priority, a court may recognize that priority in the foreclosure context by awarding the fixture creditor payment from foreclosure sale proceeds attributable to the fixtures, rather than restricting the creditor to physical removal.

## Conclusion

A secured creditor that timely perfects a PMSI in fixtures by a proper fixture filing takes priority over a prior recorded real estate mortgage with respect to those fixtures, and that priority may be implemented through payment from foreclosure sale proceeds to the extent of the fixture creditor’s secured claim.


Capitol Federal Savings & Loan Ass’n v. Hoger, 19 Kan. App. 2d 1052, 880 P.2d 281 (Kan. Ct. App. 1994)